Product vs Service - Which Do you Prefer to Sell?

[astr0]

The one with a product says, I want a service where I don't need to worry about inventory and importing. Plus it costs so much money to purchase inventory.

The one with a service says, I want to sell a product so I don't need to deal with my customers and phone calls. I want to sell a product and let Amazon handle all the customer service and shipping.

Both of your friends would love digital products.

No inventory. No importing. No investments to purchase inventory and the servers are quite cheap.
No phone calls. Minimal customer service. No shipping.

A big investment upfront to create the product and some relatively low recurring improvement costs.

From my short experience with both, I would say products are more fun. That's probably partly because I'm currently in services for more than a year.

With services, you're actually managing the service more than doing sales/marketing. You're getting paid for your time which is hard to resist in a small company plus hiring people is a pain, especially in high-skilled fields like software engineering. We get 20+ relevant CVs per position, talk with every one of them, and do 10-15 interviews to hire one developer. There are two interviewers, so it's roughly 45 hours to hire someone great.

Services do scale well, slow, and steady. I would also say they're more stable at any scale.
On the other hand, the web product we had crazy swings with almost 0 profits during the COVID lockdowns and more than service business can make at the current scale in a year on best months.

With product business, you have more free time for high-level thinking and taking actions based on that. With services you're stuck in the business 80% of the time, have 20% time for sales and thinking. Taking actions on evenings and weekends.

 

[ItsAJackal]

For me it would be something simple and require no geographic location so a digital product. Something you can create once and sell over and over again without the need for stock, physical shipping, replacements, returns etc. (I've had enough of running those sorts of businesses over the years).

Something that once built will allow you to spend all your effort in marketing rather than the myriad of processes required in running a warehouse full of stock or worrying about competitors, Amazon, drop shippers courier prices, product margins etc. etc. etc..

More of a SaaS solution? Or an application to solve a problem?

 

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[RayAndré]

Following.

 

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[ZeroTo100]

All things being equal, I prefer a product. My reasoning for this is that, at least for the businesses that I am envisioning a product is easier to scale quickly. And first to market can be a huge advantage, especially if there are obstacles and barriers to entry involved.

That said, my next venture will be providing a service. It will not scale to infinity, but it will not require a lot of my time or money. I have no problem with hitting a doubles and singles. A home run is not necessary to finance my lifestyle.

The question is interesting to me, but for the way my mind works it puts the cart before the horse. I have to see the opportunity first, and the lay that alongside CENTS to see how it fits. I can't envision starting with CENTS and building the idea from there. If you can, then you are thinking at a higher level than I can.

Product. I really like the fact that someone can buy my product, touch it, feel it, and years later say "it's a good product". Also I like the packaging, and I think physical is the best thing.
You may pick a R.O.I service skill, and get it running faster, but how much can you scale it ? I think if you don't build something like the next uber or the next facebook or something like that. Digital products don't have a big potential to be the next multimillion dollar companies.

A physical product has better chances. Just my opinion by the way.

It really depends. I think there are some companies out there who started as services and found ways to productize it and sell it.

I listened to every single tropical MBA podcast and for a while they spoke about this model. It got me thinking a lot.

A lot of people forget about affiliate marketing also...Some don’t realize that there are companies out there that pay recurring every month. So yeah, you can build a few clients a month and if your site gets a penalty, you don’t lose revenue unless those people pull out...

Unlike with amazon associate sites.

Yeah, it hurts control but you can always find another affiliate or run paid ads.
- No overhead
- No customer service
- Non of that stuff. Just sell!

 

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[Razzle]

I agree with u/astr0

Service is easier & cheaper to start, but more difficult to scale vs a product.

So it depends on where you are starting and what you want to accomplish. If starting from scratch & shooting for $10k/month, service all the way. If starting with knowledge & skills, trying to get to $500k/year - info product. If starting with cash/resources and going for multi-million dollars/year - physical product.

What do you mean by info product?

 

[astr0]

You focus heavily on marketing and sales, making sure to maximize the number of people that see you, hear about you, and eventually call you asking for services. You have hundreds of people calling you and only choose the few customers that 1. want recurring services and 2. are willing to pay a monthly rate that works out to be about $100 an hour that you price with a formula based on square footage. You sign them up on contracts that they are not allowed to cancel and prorate the totals over the whole 12 months so your revenue is no longer seasonal and they pay the same price each month. You offer only 1 or 2 plans and you make the work simple. You can fit many jobs all together and you know how long they will all take. You charge the customers' cards at the beginning of each month, and any mistakes you make you just correct at the next visit. The workers you hire can be more affordable because the work is predictable, repetitive, and simple. You have already signed up customers at an expensive rate, so you can be relaxed with your workers and not work them to death. They will have easy jobs and work at a reasonable pace so you don't have to watch over them constantly, even though you could because you track their location with GPS to see their progress. You don't have to constantly bid jobs because you only showed up once at the beginning of the year to sign them up. Since you can trust your income will be consistent, you can comfortably buy equipment and additional trucks without worrying about a dry spell. Since you have a simple formula for pricing and there are fewer mistakes and fewer issues for you to correct, it's easier to hire a competent manager since it already runs so well. Your simple systems allows you to replicate the process somewhere else with another location. You can now quickly and effectively combine the low-attention and scaleable perks of being a product business, with the profits and demand of services. And you'll one day build the Mcdonalds of lawn care while Joe Blow has his one landscaping company.

Great plan! REP+

I'm in the process of building a niche software development service business and had a little similar plan although not that detailed yet.

You focus heavily on marketing and your partner on sales. This is pretty high-ticket business, so you won't have 100s of calls, but landing a few clients a month would be great. You never price per hour or doing an estimate for the project. Instead, you have 3 fixed price plans and just point the client to one of them depending on their needs. You push a dedicated team contract for the bigger projects, it's not that profitable but builds the bottom line. The projects in the niche are pretty small compared to the most software - so less competition, more clients and thus more referrals. They also require very similar skills from the developers, allowing to easily interchange people, quickly improve their skills and greatly simplify hiring. Optimizing delivery system mostly by reducing every overhead of bigger competitors and making communication as direct as possible would allow doing more work faster, thus having much higher rates and happy clients. Delegating sales is much easier too as that's not $100k+ projects and the marketing would do most of the job. Income still won't be very consistent without many employees working as a dedicated team, but high margins would compensate for the idling. This business doesn't need a bunch of traditional managers that other companies in the industry are packed with, a unit of scale would be a dozen of developers of different levels and a salesman that also has little PM responsibilities making sure everything is working like a swiss clock. He would know everything about the project cause, well, he got it, so communication overhead is minimal there too. With time we would also need other types of employees, but freelancers would do for the nearest future.

So that's a productized service too, right?

In fact, I have some doubts about following this plan now, after working on the current client's project.
I've been an employee in a software service business for more than 10 years, even had one failed service business 10 years ago. But every project I've worked on was something for enterprises, either public or for internal use. The current project is more of a startup that's live for little over a month only. And I know all the metrics. And I would need like 24 employees to hit them with this service business, which is nearly impossible in less than a year, 2 years is more realistic. And it's pretty much on autopilot, we still have to add one important feature to convert more users and increase the LTV, add localization for the different markets and probably can expand to similar niches. That's a month or two of development, max.

The ceiling of this product is definitely lower than software development service, but it can reach pretty close to it with 3-5 employees. While with service it would be hundreds to get better results...

We can make dozens of software products a year, so even if one of them takes off it would definitely pay for all the failed ones. Need a large marketing team for that, lol.

Maybe selling shovels is really better than renting diggers?

 

[astr0]

The idea is to find the thing people mentally place the most value on, which you can deliver in a laughably easy way using systems, and you stick with it.

I don't know about the process of software development or how it usually works and that's an important part, but I would look for the easiest thing that people are willing to pay a relatively high price for and sell it as a package. Packages are beautiful because they reign in the client's unique desires and says "no, pick from our options, no unique bullshit" and makes the work much easier. You don't go to McDonalds and have a consultation about what food they should make for you. You get a menu. It's the same idea with service businesses. Give them a menu, not a consultation.

With developing software, I think it would be fun to advertise to investors as a fund, advertise to the general public as a software development firm that grows businesses and makes ideas come to life, and you take equity and ideas, develop software and grow the business and position it as partnering with the new business, and use investor capital from your fund. You'd bring together ideas, the expertise to develop software, and money to speed things up. And you'll have your hands on all parts of it, giving you lots of control and flexibility.

Yeah, everything applies to the software dev business.

Except, the client can't pick from the menu cause he knows what he wants, but doesn't know how that would work.
For example, we have two projects running now. One is cryptodividend, the other is under NDA. First was built in 20+ hours, the second doesn't look much more complex from the first sight but 400+ hours was put already and that would double soon without too many changes visible to the users. The UI is just a top of the iceberg for that one, everything else is on the pretty complex backend.

So yeah, we would have packages, but that would be just to prepare prospects and hopefully avoid writing custom detailed offers. During the sales process, we would still discuss what can be done under different packages and recommend the one that would fit the best and would deliver optimal results. Or decide the minimal that still makes sense...

On the advertising part, that's the plan more or less. Except ideas are usually not that important and are quite easy to come up with. So that would be either making software for the clients and possibly helping them with the seed round or making a fund and producing our own software products. In fact, from the last project, I know an Asian fund doing that within one niche pretty profitably.

The first approach is more traditional. The second would require fewer developers, but also some marketers, copywriters, community managers and CEO-minded people to grow those products from infancy.

 

[Johnny boy]

Could you show some of the software you have the capabilities of building? Something similar to something you've created. I'm very curious about your services.

 

[ItsAJackal]

This is fantastic.

@Johnny boy I knew you would come in and crush it about the service side. Thank you for your input.

@astr0 That in depth look helps a lot, thank you!

I think one of the main reasons I've been struggling and standing on the trust fall box for weeks and never actually moving was because I was thinking about this the wrong way. Everything I've read is service service service. Service is the easiest to start up, never depend on Amazon/another site to sell your products, unsexy businesses are the king, etc.

So I wait. I struggle. I get frustrated and depressed because of my lack of action.

I should be looking at a product business instead. I am naturally an introvert. This quote hit home.

I guess it depends on what you're looking for in business. Services are probably better for extroverts and anyone who loves face-to-face contact as that's often the basis of a service-based business. Meanwhile, products are better suited to those who want to reduce the human factor (customer support, managing employees, etc.) as much as possible.

I know it's worrying about step 12 when I haven't even gotten to step 1, but every time I've thought about a product business my very first thought is, "But there's no way I could take the time to fly to China and walk the manufacturers production facilities."

You can easily see my struggle in the execution thread I started. I bounce between 5-6 ideas, and none of them feel right. I get anxious about having to deal with people just writing some of the ideas down.

I think it's easy for Amazon to be a 4 letter word around here because it slaps the "C" right in the face. If Amazon goes down tomorrow you could lose everything. I guess the right move is to possibly start on amazon but also create your own store front on a website?

 

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