Product or service business: Which one’s best?

As in the wider business world, franchises can be divided into two different groupings. There are those that sell products, and those that sell services. While these two different types of franchise share a number of similarities, they can be quite different.

It's also true that some franchisees suit either product or service-based franchises and probably have a better chance of success in one or the other. This makes selecting the right type of franchise incredibly important. Here, we take a look at the two different types and discuss their respective advantages and disadvantages.

What is the product industry?

Product franchises are those associated with a specific, physical range of goods. The product could be anything, from cleaning products to foods and digital devices. But it’s highly likely that the franchisor will set certain standards for the product or require the franchisee to purchase the product from a specific supplier.

A number of factors will influence the success of a product-based franchise. These include the location of the franchise, the availability of skilled labour and the franchisee’s ability to effectively market the business to the target demographic. A product franchise must maintain the quality of its products across the entire franchise network, otherwise its reputation is likely to suffer irreparable damage.

There is a wide range of product-based franchises, some of which can count themselves amongst the most successful franchises on the planet. McDonald's, Subway and Starbucks are all product franchises.

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Advantages of working in the product industry

• Benefit from franchisor support – Many product-based franchises will take care of pricing structures and marketing campaigns for the franchisee. This allows the franchisee to focus on other tasks.
• Appeal to impulse-buyers – Product franchises benefit from selling something physical. Consumers find it far easier to appreciate the value in physical objects than with abstract services and, to a certain degree, feel a greater sense of satisfaction when purchasing physical products.

Disadvantages of working in the product industry

• You may suffer from trends – Their products are often subject to the whims of consumers and often suffer from the ups and downs of fads and phases. While you can make a lot of money while the times are good, you can get into serious trouble if your product goes out of fashion.
• You’ll need more stable finances – Product-based franchises are usually much more dependent on disposable income. You’ll need to make an upfront investment at the start of your business venture and economic downturns can have a big impact on your ability to turn a profit. At best, this may mean diminished margins. At worst, it could force store closures.
• Developing good customer service takes time – You’ll need to provide excellent customer service in order to maintain a positive reputation. This can take a lot of time and effort.

What is the service industry?

The service industry encompasses franchise companies that provide a service rather than a tangible product or good. Rather than selling a physical object, they’re selling an action or a process. The service franchise industry includes businesses like estate agents, accountants, business training firms or management consultants. They often involve skilled workers utilising their technical expertise to fix niche problems.

Service-based franchises generally have lower overheads, as they’re not usually dependent on fixed premises and can be operated remotely from home or on the move. However, the lack of a fixed business address means marketing plays an important role in raising public awareness of service-based franchises.

Advantages of working in the service industry

• Save money – Service franchises generally benefit from a smaller franchise fee and lower start-up costs. This makes them an attractive prospect for many investors.
• Stand out in the crowd – As a provider of niche services, you'll also find it easier to distinguish yourself from the competition – because there's generally less of it.
• Sell vital services – Compared to product-based franchises, service franchises are often considered essential. They offer services that you need to use, rather than items you want to buy. In other words, services are purchased to fix important problems.
• Choose your working style – Service franchises are usually more flexible than product franchises. Often, you can work fewer hours, operate remotely and don’t need to be tied to a specific business premises.
• Benefit from variety – Because service franchises are all about fixing problems, you’ll have variety in your work and will learn along the way.

Disadvantages of working in the service industry

• You must be self-motivated – You need to be a disciplined and organised person, able to motivate yourself and deliver results even though there may be less pressure to work specific hours or complete certain tasks. For many franchisees, the problem with service-based franchises is the fact that you often have too much freedom.
• You’ll need to see jobs through to the end – You have to be there to support your clients and make sure that you offer a solution to their problems. This involves dedicating as much time and effort as is necessary to get the job done.
• You may get less support – Service-based franchisees also need to be aware that they may receive far less support from their franchisor than product-based franchisees. While it's likely that training, guidance and digital systems will be provided, the rest is up to you.

What suits you best?

It's difficult to know whether you're more of a product or service-based franchisee without knowing what motivates you, how you work and what your main skills are.

If you're capable of working independently and have a specialised skill set that could be put to good use, a service-based franchise may be the option for you. If you're more interested in delivering concrete products and are satisfied by the customer's enjoyment of your goods, a product-based franchise is probably for you. Essentially, it comes down to personal preference, experience, inherent abilities and personality type.

While there are noticeable differences between product and service franchises, most franchisees don’t have to think too hard about which they want to be involved in. In most cases, franchisees feel a natural attraction towards one or the other.

If you’re really confused as to which plays to your strengths, it may be a good idea to contact both a franchise in the service industry and a franchise in the product industry. Discuss the issue with each franchisor and see what kind of applicant they’re looking for to work out whether you fit the bill.

Product-based franchises to get involved in

• Interior decoration and furniture stores – If you start one of these franchises, you’ll offer a catalogue of products for the home. This could include wallpaper, paint, carpets, fitted kitchens and bathrooms, as well as furniture. To maximise your profitability, offer products in a range of colours, sizes, materials and finishes. Apollo Blinds and Gautier are examples of this type of product-based franchise.
• Entertainment franchise – Whether you sell physical DVDs and CDs or online video games and software, entertainment franchises can be extremely lucrative. Why not join the second-hand retailer CeX to help customers find their favourite films, music and videogames for a lower price?
• Clothes shops – Business owners that sell clothes can make a huge return on their investment if they get the formula right. While many enjoy snapping up the latest trends, others have turned away from fast fashion to source more sustainable pieces. Take advantage of increased interest in ‘slow fashion’ by becoming a franchisee with Noa Noa.
• Food retailers – There are a huge number of food shops up and down the UK, ranging from independent corner shops to international supermarket chains selling everything from vegetables, to clothes to garden furniture. Point Franchise is currently advertising opportunities with the charity food box business, Charisnack, and the vending machine franchise, Tubz.
• Restaurants – Restaurants, cafes and other eateries can be classed as product-based businesses as they offer a set collection of goods. Franchise with The Avocado Show or The Incredible Ice Cream Company to enjoy the perks of being a restaurant owner.

Service-based franchises to get involved in

Here are just a few of the sectors you could join with a service-based franchise:

• IT – Help businesses boost their brand awareness and enhance their online presence by becoming a franchisee in the IT sector. Activ Net Marketing is just one franchise that enables you to do that.
• Tutoring – This sector is not only financially rewarding, but personally rewarding too. Why not support children through school as a Kumon franchisee? Or try your hand at being a cookery coach with Smart Raspberry. Tutoring franchises don’t have to be aimed solely at children, though. ActionCOACH teaches employees and business owners how to develop skills and grow their company.
• Financial services – Help individuals and businesses with banking, insurance and investment issues. Franchises such as Business Doctors, Brokerplan and Certax offer these kinds of services.
• Logistics – Transport products to their end destination with a logistical franchise like One Delivery, which delivers takeaway food, or World Options, which moves parcels, packages and pallets between businesses.
• Wellness – This sector is soaring in popularity at the moment. As people pay more attention to what they put into their bodies and how much exercise they’re doing, you can capitalise by launching a gym business. Take a look at Energie or Fitness Space, for example.
• Pet-sitting services – Dog owners are increasingly turning away from kennels, in favour of services that offer a more rounded experience. Pet-sitting franchises enable owners to hand their pooch over to a friendly dog-lover who will look after them in the same way their owner would. Barking Mad is just one example of this type of business.