Service Based Business Advantages and Disadvantages

There are various types of business ventures, some of which are centered around products while some are service-based and cater to different sets of customers. Service-based business is somewhat different from product-based ones as you don’t need to manufacture anything to sell off and instead use your skillset to solve people’s issues and provide services. This is a reason why there has been an increase in the service-based business ideas in recent times.

The service-based business allows for flexibility in terms of starting it and often is easier than the manufacturing or product-based business to run. It is also more co-twined with the interpersonal skills of the business owner. As much as there are advantages and pros of a service-based business, there are certain issues that often hamper it.

We here take a look at both sides of the coin to find out the dual side of the business aspect of a service-based one. Let’s check them out.

Advantages of a Service-based Business

Here are some benefits of starting a service based business in India:

1. Less Capital to Start with

When compared to a product-based or a manufacturing-based business, service-based costs less capital to begin with. You don’t need extensive investment and equipment to start and don’t necessarily need to set up multiple processes or lines for the business to start. This saves a lot in terms of initial outlay. You just need to register your business and have a business address to start and many people can start such a service-based one right from their home backyard or garage.

 2. Higher Profit Margins

Since there’s no need for massive manufacturing or product distribution channels, service-based businesses can rack up a higher share of profit margins from their business. The costs of running the business are much lower and it’s mainly based on providing the services of your skillset. This also reduces the overheads and allows you to generate direct revenue with fewer channels of payments resulting in quicker turnaround for payments and higher profit shares. For say, let’s say you have a car wash service business. Your costs of running are much less and with additional footfalls you can generate a higher share of profits.

3. Work in your area of expertise

Service-based businesses are often started by people who are experts in their fields. Let’s say an electrician can start an electrician-based service business while plumbers can offer a plumbing service business and so on. And if you’re a business advisor you can offer advisory services too. This option to work in the area of your expertise is what offers people to open a service-based business in their field. We’ve seen plenty of service-based businesses that are opened and managed by these professionals and highly credible people in their fields. Opening a service-based business allows you to work in your business and be a business owner rather than working under a boss and getting paychecks to live for.

 4. Networking and connectivity

Since service-based business is about reaching out to customers and offering them your service, the field requires a lot of networking and connecting with people. This is somewhat different from the bigger corporations indulging in the product-based business where they hardly encounter the end customer and network with them. Service-based business opens up a new door of networking and it’s a must need for the business to flourish. This improves the connection and can help build newer business relations and expand the customer base to generate higher revenue.

5. Flexibility

Service-based business tends to be flexible and isn’t shoe-horned into being just one type of service. There are various add-ons and ancillary services that can go along with the major service business and that’s what the business owners too. They club flexibility in their services and cater to solve the needs of the people. Such flexibility of customizable service as per the need of the consumer is often lacking in the product-based field.

Disadvantages of Service Based Business

1. Lack of scalability

Although the service-based business has the option to become flexible and offer ancillary services to go with, the overall scalability of the business is often hard for them. The reason is that since a service-based business is based on the skills and expertise of the owner, there’s a limit to the number of customers he can cater to. A service-based business can never go outright into expansive mode and suddenly offer services in multiple destinations overnight as that will require a significant injection of capital and additional manpower.

2. Management

Opening a service-based business is easier as it requires less capital and stuff. But still, there are certain things that you can never avoid for say equipment, staff, and other business activities that need to be done. These require articulate management skillset from the person and anyone who finds it difficult will have a hard time running the business successfully. A business operation is much more than what’s seen from the open eyes and understanding each aspect of the business to go with while also keeping the business running successfully is pretty tough.

3. Marketability

Since service-based businesses upon starting are small-scale based you can’t rely on a large team of marketing groups to do your marketing. As such, you need to tap into various streams of marketing for say, social media, networking, reaching out to local communities, and other stuff. Add to that your service is intangible, how do you cater to this entire marketability part? That’s where some of the service-based businesses find it hard.

4. Vulnerability to economic crisis

More often than not, it’s the small-scale businesses who are dealt the major blow during the economic crisis. Major corporations can cut back on different costs and still soak some loss for a period to keep afloat but small-scale businesses have a hard time. During the economic crisis, the purchasing power of the people is much less and they prefer to spend as less as they can. This is where service-based businesses can find a hard time getting customers for some period as no one would love to spend money at that moment. This can harm the overall business prospects.

Final Words

The service-based business has a lot of good stuff about it as it can be started by anyone who is an expert in their work area. It also has an easier beginning and can be grown further based on the networking and capacity of the business owner. At the same time, there are a few areas that can hamper the business and as an owner, it’s paramount that you know them ahead to plan the business properly.