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 service business model includes various internal inputs and external outputs that result from activities within the company. Each business model needs to be reviewed to ensure that the business maximizes profits from servicing while keeping costs low.
A business model begins 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 automobiles will often need to provide repair or maintenance services to consumers. The manufacturer will then need to create a model to manage the tasks and activities involved in repairing the products produced.
Another aspect of this business model is determining the target market of the model. Using the example above, a car manufacturer can repair its own cars and other vehicles. However, the company may repair other car models sold by competitors, as these vehicles may have similar parts. Thus, the manufacturer may have two target markets: its own customers and those of a competitor. The repair service model can also repair other motorized vehicles or items, such as RVs, boats, and golf carts, increasing its target markets.
The structure of the service 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 vehicle repair may be the primary focus of the business model, other activities such as answering customer phone calls, making appointments, ordering supplies, and securing funds received from customers are also included in this model. The manufacturer must create a system where each activity is carried out in a controlled environment.
A final step in the service business model is to find areas where the business can make a profit. Additionally, owners and managers must limit the costs associated with the 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; while it helps to schedule appointments or create customer interactions, it doesn’t always directly generate profits. Therefore, the company will have to limit the costs of these essential activities.