Woman with hand on hip
A service business model is one that provides services to consumers rather than selling physical goods. Common service processes include product repair, house cleaning, and similar activities where a tangible product does not change hands during a transaction. Like any business model, the services business model includes various internal inputs and external outputs that result from activities within the company. Reviewing each business model is necessary to ensure that the company maximizes profits from service tasks while keeping costs down.
A business model starts with a value proposition. Companies look for profitable business activities and then create a series of tasks to produce the end result. A service business model will look for ways to solve problems, such as ongoing product repair. For example, a company that manufactures and sells cars will often need to provide repair or maintenance services to consumers. The manufacturer will then need to create a model to handle the tasks and activities involved in repairing the products produced.
Another aspect of this business model is determining the model’s target market. Using the previous example, a car manufacturer can repair its own cars and other vehicles. The company may repair other models of cars sold by competitors, however, as those vehicles may have similar parts. The manufacturer may therefore have two target markets – its own customers and those of a competitor. The repair service model can also repair other vehicles or items with engines, such as recreational vehicles, boats, and golf carts, increasing your target markets.
The structure of the services business model also comes into play when configuring or redefining this system. Companies using this model can engage in many types of service activities. For example, while repairing vehicles may be the main focus of the business model, other activities such as handling customer phone calls, making appointments, ordering supplies, and securing funds received from customers also fall under this model. The manufacturer must create a system where each activity takes place in a controlled environment.
A final step in the services business model is to find areas where the company can generate profits. In addition, owners and managers must limit the costs associated with activities in the model. For example, vehicle repair will drive sales and will be the main method of generating profit for the company. Answering phone calls is an expense item; while it helps set appointments or create interactions with customers, it doesn’t always directly generate profits. Therefore, the company will need to limit the costs of these essential activities.