Grow a Product-Based Business Advice on how to develop a business around a product idea.
Written by Cynthia McCahon Have you ever considered the various businesses that participate in putting on a Major League Baseball game? While the "businesses" that get the most attention are the baseball teams, there are many other businesses that handle the food concessions, the shops that sell jerseys and other team paraphernalia, the company that manages the stadium, and the list goes on and on.
In order to properly forecast financial results, it is important to distinguish whether the company is essentially a "manufacturer" or a "service provider".
In this article, I will discuss the differences between these two types of companies and explain how these differences affect their financial forecasts. The simple, straightforward difference between manufacturers and service providers is that a manufacturer sells a tangible product while a service provider supplies "useful labor".
It is important to see how this difference works in practice and its impact on forecasting costs and the necessary amount of financing. Manufacturers purchase raw materials and incur labor and overhead costs to prepare products for sale.
Continuing with the baseball game example, let's consider one of the teams. Although you might think that the company has an inventory of players from which to select the line-up, the team is actually providing a service. Players' "useful labor" earn money by entertaining the patrons who pay to watch them play I mean, "work".
Like many service companies, the majority of the teams' expenses relate to salaries. As a result, future costs are comparatively easy to estimate.
A manufacturer has a more complicated forecast as the company has to estimate changing production-related costs.
At a ballpark, an example of a manufacturer would be the food concessions. Just like any other restaurant, the company's employees labor make use of food ingredients raw materials to manufacture food items or meals. The company has to estimate the most efficient number of employees during times of peak production before the game and between innings.
To put together a good forecast, the manufacturer has to consider changing raw materials costs, labor costs at different levels of production, and the optimal level of inventory to keep on hand. Money is required to produce or purchase inventory so manufacturers usually require more financing than service providers.
Some companies are both service providers and manufacturers. Let's say that a rock star is hired to sing the national anthem.
After singing, she sets up a booth near the concessions, takes pictures with fans, and sells her CDs. In this case, the singer provides a service when she is paid to sing the national anthem.
She is also acting like a manufacturer when she sells a tangible product, the music CD. To produce the CDs, the singer would have incurred costs to purchase blank CDs, paid for time in a recording studio, and paid producers to produce the singer's product.
All of these costs incurred to produce the CD would be included in the costs of the CD inventory. In the real world, there are many companies that sell both services and products. One type of company that is tricky to classify is a software company.
Consider the programming that goes into those scoreboard races that have become so famous. For example, when there is a downtime at a Washington Nationals game, the scoreboard displays a footrace between Presidents Washington, Jefferson, Lincoln, and Teddy Roosevelt.
There is a lot of computer animation by programmers required to put together this entertainment. Is the programming a "tangible product" or a "useful service"?
Programmers spend hours putting together a product, but often they don't have a physical product that sits in warehouses. Is a software programmer a service provider or a manufacturer? It really depends on whether the company continues to incur significant costs when the software is being distributed.
Can the costs incurred be matched with the particular items sold? Would the distribution of the software result in significant additional costs to the company?Service Business: Example Business Plan.
To help you get started we’ve created an example business plan for a service based business. Our example is for a tutoring company, but the principles apply to any service based business. A minimum viable product is not a product, it's a process; Build distribution channels or sell products.
Your business plan will vary depending on your type of business, but one main difference to take into account is whether your business is product-based or service-based.
As the names imply, a. What is the difference between product based and service based IT company?
What is the difference between a service based and product based company? In terms of a business plan, product businesses tend to focus on building their brand reputation, improving their market position and making sales, while service businesses tend to place.
A business plan doesn’t have to be elaborate, it just needs to explain your plan for your business.
To help you get started we’ve created an example business plan for a service based business. Our example is for a tutoring company, but the principles apply to any service based business.
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Running a Service based Business – Pros and Cons All of us have our own set of skills and areas of expertise—all you really need to possess is the drive, dedication and the desire to turn your skills into a revenue generating opportunity.