When you’re starting out as an entrepreneur—with your one great and unique idea, you will want to decide whether you’ll be a service or product-based entrepreneur. What are you going to sell? Both have benefits and challenges, but you need to determine if it’s a service you’re selling or a product. Typically, breaking into the entrepreneurship role, most people lean towards selling products. Usually, products are easier to market because the value can be seen in the product. However, selling products requires more up-front capital to invest in inventory. On the other hand, selling a service requires little to no up-front cost but a lot more marketing. You have to really market a service to show the value of the investment. When establishing your business model, ideal client, mission, etc., deciding whether your product or service based is essential to a successful business.

Some business models will be more obvious than others. For example, someone who wants to start a dog grooming business will obviously be a service provider. However, other unique ideas might have some grey areas in deciding. Both business models can be very successful and profitable. So if you have that amazing idea but have the grey area to decide whether or not you can create a product or offer a service, this article will help you determine what business model will be better suited to your amazing idea. There are three key factors to consider: the first is timing; how much of a time crunch are you on to launch your service/ product? Two is marketability; how much will you need to market to sell? And three, profitability; how much capital will you need upfront versus how many customers you can reach quickly?

Three Key Factors to Consider for a Service or Product-Based Entrepreneur

One | Timing

The timing might be the most significant decision-maker when launching your business. If you want to launch a side hustle for quick money, a service-based business will be your best option. You’ll need something quick and easy to establish with little up-front ideation required. This isn’t true for all service-based businesses, but many can launch immediately while you build a business model. In contrast, a product-based business can require weeks, if not months, of product development with a much higher up-front capital required. This isn’t true for all product businesses. For example, if you plan to sell something made on demand, this business model requires no inventory. So you accept orders with a higher wait time, and once an order is placed, you create the product.

Essentially, you need to decide how quickly you want to launch your business or side hustle. If you’ve got a solid business model in place, you can launch a service or made-on-demand product-based business immediately. But, if you’re not in a time crunch and looking at launching a more long-term or forever business, you will want to spend far more time developing a business model and marketing your product or service before it even launches. During this time, you’ll build out a portfolio of testimonials that speaks to the value of your service or product.

Two | Marketability

On the same note of timing, you’ll want to consider what kind of marketability you’ll have. The disadvantage of a service-based business is having to prove its value. Usually, with a service, before you can even sell, you’ll need to do it for free a handful of times to establish the service’s value. You’ll need to collect testimonials and practice the service on a trial-and-error basis a few times so that you can define its value accurately. Once you’ve completed the service so many times, gathered testimonials, and established a fair price, you’ll need to market the service to your ideal client. For example, if we return to the dog groomer example, this person would obviously want to market to people with dogs! So maybe they join local dog lover Facebook groups or hang flyers in the local pet stores.

A service-based business requires a lot more up-front marketing versus a product-based one, which could require far more capital. And while you’ll still need to market a product, most often, the value can be seen in a product. The major difference between the two business models is that a product-based business requires more upfront capital, less marketing, and may require inventory. But the major difference is that most products you’re selling will have a lower cost than a service. A dog collar you’re selling could cost $12, whereas a dog grooming is more like $80. So a product will sell far more than a service-based business because a product-based business will have more passive service versus active service.

Three | Profitability

Once you figure out how much time you have to launch and what kind of marketability you’ll need, you can determine your profit ratio. Your profit ratio considers two things: the amount of service or product you can sell to the number of customers (ideal clients) you have. Profitability is third because in order to determine how much profit you can make, you need to decide on the first two factors. You need to see how much your time and financial investment into your business will be outweighed by your profit. The more time and energy you invest at the beginning of your business, the more you’ll be able to create a seamless business model that lends to making passive income.