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What is a Service Business Model?

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  • Written By: Osmand Vitez
  • Edited By: Kristen Osborne
  • Last Modified Date: 23 September 2016
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A service business model is one that performs services for 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 the activities within the firm. Reviewing each business model is necessary to ensure the company maximizes profits from service tasks while keeping costs low.

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 address problems, such as ongoing product repair. For example, a company that manufactures and sells cars will often need to provide repair or maintenance services for consumers. The manufacturer will then need to create a model to handle the tasks and activities that go with repairing produced products.

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Another aspect of this business model is determining the target market of the model. Using the previous example, a car manufacturer can repair its own cars and other vehicles. The company may be able to repair other car models sold by competitors, however, as these vehicles may have similar parts. The manufacturer can therefore have two target markets — their own customers and those of a competitor. The repair service model may also be able to repair other vehicles or items with motors, such as recreational vehicles, boats and golf carts, increasing its target markets.

The structure of the service business model also comes into play when setting up or redefining this system. Business using this model may engage in several types of service activities. For example, while repairing vehicles may be the primary focus of the business model, other activities like handling customer phone calls, setting appointments, ordering supplies and securing funds received from customers will also fall under this model. The manufacturer must create a system whereby each activity occurs in a controlled environment.

A final step in the service business model is to find areas where the company can generate profits. Additionally, owners and managers must limit the costs associated with activities in the model. For example, the repair of vehicles will drive the sales and be the primary profit generation method for the company. Answering phone calls is an expense item; while it helps set appointments or creates interactions with customers, it does not often generate profits directly. Therefore, the company will need to limit costs from these essential activities.

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