There are four broad classes that businesses can fall into, and the categorization is based on two factors. The first factor is the type of products that the business sells. The second factor is the primary function of the business. Of the four broad classes, three are based on selling products while only one is focused on selling services. The classes of businesses are service based, manufacturing based, wholesaling based and retail based.
What is a Service Based Business
A service based business is one that provides a service to customers in exchange for compensation. The business can provide for customers a myriad of services, including professional, technical and consumer services. Professional services include businesses like accounting and legal firms. Technical service companies may provide architectural or engineering services. Examples of consumer services businesses include carpet cleaning, painting and dry cleaning. It is also important to recognize that some state and local governments have requirements for particular types of service businesses, depending on the industry. For example, there are laws and codes around providing legal, medical and some beauty services.
What is a Manufacturing Based Business
A business that converts raw materials into products that are suitable for use and sale is known as a manufacturing business. These businesses can be focused on industrial manufacturing, which is when the products are sold to other manufacturing businesses. Examples of industrial manufacturing businesses are heavy machinery manufacturers, makers of metal and/or plastic parts, and lumber companies. A manufacturing business can also be focused on consumer manufacturing, which is when the products are sold directly to the public. A company that manufacturers for consumers may be involved in selling homemade skin care products, custom woodwork or hand crafted jewelry. Most consumer manufacturing companies are on a smaller scale, as larger companies will usually not sell their products directly to consumers. Instead these larger manufacturing companies will prefer to deal with wholesaling businesses to get their products into the hands of consumers.
What is a Wholesaling Based Business
Businesses that buy lots of products in larger quantities and resell them in individual or smaller quantities are labeled as wholesaling businesses. The large quantities are usually purchased from a manufacturer, and the smaller quantities are usually sold to retailers. Wholesalers have profit in their business by purchasing the products at a lower price from the manufacturers than what they sell the products for to the retailers. Owners of wholesaling businesses are most commonly known as being a middle man, distributor or intermediary because of their role in linking manufacturers with retailers. Wholesaling businesses also do not generally sell their products to the public in a direct manner, but will instead prefer to deal with retail businesses.
What is a Retail Based Business
Businesses that buy products from wholesalers and sell them directly to the general public are retail based businesses. Also called a retailing business, these types of companies focus on the end consumers as the buyers of their products. A retail business may sell clothing, groceries, household goods, or any number of other items. There are traditional brick and mortar stores, where consumers actually physically go into the store to purchase their items, and there are online retail stores where items are purchased via the internet. Another less common retail business model is one where products are sold via mail order catalogs. Some companies that exist today got their start as mail order, and then transitioned into brick and mortar stores. Today we are seeing a shift of brick and mortar stores transitioning some of their business to the online retail model.
Understanding the different types of businesses will give you a full perspective on the landscape of the markets available to you. Do your research and understand what type of business you are looking to start or are currently operating.