Make Your Choice: Which Type of Home Business?
There are an incredibly large number of possible home businesses you can choose from, so start by narrowing the field. First, choose one of these two types:
- Service
- Product
The main focus of your business can be either service oriented (providing a service in return for a fee) or product oriented (selling something). Note that I said ‘main focus’ — real world examples abound of these two categories overlapping — if you have a pool cleaning service, for example, you will probably also sell chlorine and other pool maintenance products. If you choose to sell tropical fish, you might also offer wet-pet sitting services to your customers. Your business needs to be focussed primarily on products or services, however, to create a clear image in the minds of potential customers. Once you have their attention, you can ‘cross-sell’ or ‘up-sell’ related products or services.
Services — Advantages and Disadvantages
The main advantage of a service business, assuming you already know how to provide the service, is that there is usually very little start-up cost. You may need equipment or tools, or you may have them already if it is an area that interests you. Depending on the specific service you choose, you may be able to work hours of your own choosing — though there are limits based on practicality and customer expectation. Pool cleaners, for example, are rarely expected to work after dark! Many service oriented businesses, such as consulting or music instruction, take advantage of your particular skills or education, and can be more profitable than many product based businesses.
The largest disadvantage of service oriented self-employment is that there is only one of you — it does not readily leave room for expansion. If you get ill, your income usually stops (when you need it most). Partnerships can be difficult to manage in service based situations, since the work-load is never evenly divided, so perceptions of unfairness can lead to hard feelings. Expanding beyond partnerships is even more fraught with management difficulties. The more skill required to provide the service, the more difficult it is to expand.
Products — Advantages and Disadvantages
A product based business usually requires maintaining inventory — though not always. If your business requires inventory you may need extra storage space. If the product is perishable, you have the further concern of spoilage. Product based businesses that do not require you to keep an inventory, such as catalog sales, drop shipping, or sales of intangible products like software or ebooks, often suffer from too much competition. With any product you do not personally produce, you also have the cost of purchasing the product to factor in — your profit potential is only a fraction of the total sales.
On the other hand, it is usually much easier to sell actual products than to get people to pay for services. Tangible products, in particular, provide an immediate gratification, and the perception of worth. Some services can be gratifying, such as when you see how clean your pool is, but others take time to bear fruit, such as music lessons or consulting advice, so dissatisfaction is almost inevitable among some percentage of customers. With products, satisfaction levels are likely to be higher, so long as the product was accurately represented.
These are just some of the factors to consider when deciding if it is better for you to sell a product or service. Other factors tend to apply depending on the specific products or services. In future posts we will look more closely at particular businesses, and weigh their advantages and disadvantages.