Why are product based companies better than service based companies?


It’s easy to get caught up in the idea of service based companies and their glamorous lifestyles. But have you ever considered what product based companies have to offer? 

You might be surprised.

Product based companies are more lucrative because they sell goods instead of services. These businesses are also less likely to go under, since they don’t suffer from costs associated with employees. 

They also tend to be safer, because the products are tangible assets that are worth more than just an intangible service. 

A successful product-based company will pay off huge dividends for investors who’ve put their faith in it.

Febraf has some more information about why product based companies are better than service based companies.

The good news for investors is that there are plenty of product-based companies trading at generous valuations. 

It’s hard to find a middle ground though, and it can be hard to decide on which potential buy to invest in. 

Here are some points about why product based companies are better than service based companies-

1. Service based companies can’t guarantee revenues

Service based businesses depend on the amount of work they do to make money. They’ll rake in cash if they do a huge amount of work, like doctors or law firms. But if there aren’t enough customers for them to service, they’re not making anything. 

It’s very complex for service based companies to guarantee revenues because their success is dependent on how well they serve customers, which will vary from day to day according to how good they feel that day.

A product based company doesn’t have this problem because it can always use its products as collateral for loans. 

It can use this money to pay its workers and can ensure that it can keep going even if there isn’t a huge amount of order on that particular day.

2. Service based companies have a challenging cost structure

One of the biggest challenges facing service based companies is how they’ll pay for their workers, since they don’t have an equity market to sell shares through. 

This is because service based businesses will need to make extra money from customers in order to be able to pay their employees, which is a challenge if customers aren’t interested in using their services.

Product based companies don’t have this problem since they can always sell goods as collateral for loans and the products themselves are the actual assets which are being used as collateral.

3. Selling goods is more lucrative

Even if the service based company does get customers, it still needs to find ways to get money from them. It’ll need to charge fees for services, which will hopefully encourage people to use its services. 

If it can’t get customers because they’re not interested in paying its fees, then it doesn’t make any money.

A product based company doesn’t need this problem because it will always be selling something and there are more buyers for everything than there are sellers. 

All you need is one buyer of your product and you’ve made a sale. It’s also possible for a product based business to sell goods at very low costs that people will want because their needs are not being met by the existing alternatives.

4. Product based companies can keep going even if they’re not selling much

Since product based companies don’t need customers to come in and use their services, they’ll be able to stay afloat if they don’t sell too much. 

They can always make sales to other companies who might be interested in the products and will pay money for them. 

A service based company, on the other hand, dies if it has no customers because it won’t be able to pay its staff and will eventually close down.

5. Businesses are more profitable than service based businesses

Since a product based company doesn’t need customers as much as a service business does, it’ll be able to afford more labor than a service business can. The service business will be able to pay its workers less than the product business.

The reason is that they’re making more money by using their products as collateral for loans instead of customers’ cash. 

This means that a product based business will be able to pay its workers more than a service business can.

The main benefit of buying product-based businesses is because most investors and investors will do so and most investors will do it wrong, because most don’t understand the economics of these businesses and how they work. 


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