What is the Difference Between Merchandising Companies and Service Enterprises?

by Jacky Chou
Updated on

If you’re wondering what the difference is between merchandising companies and service enterprises, you’ve come to the right place. In this blog post, we’ll break down the key differences between these two types of businesses

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Merchandising companies vs. service enterprises: the basics

Simply put, a merchandising company is a type of business that sells products, while a service enterprise provides services. The line between the two types of businesses can sometimes be blurry, as many companies offer both products and services.

In general, merchandising companies generate revenue by selling physical goods, while service enterprises generate revenue by providing labor or expertise. Merchandising Companies typically carry inventory and sell to customers through brick-and-mortar stores or online. Service enterprises may sell physical goods as well, but their primary source of revenue comes from the sale of their time and expertise.

There are many different types of merchandising companies from small businesses that sell handmade goods to large businesses that sell mass-produced products. Service enterprises can also vary widely in size and scope, from local businesses that provide personal services like hair care or pet sitting to national businesses that offer expert consulting services.

The key difference: inventory

In the business world, the terms “merchandising company” and “service enterprise” are sometimes used interchangeably. However, there is a key difference between the two: inventory.

A merchandising company is a business that sells products. The inventory for a merchandising company includes the products that it sells. A service enterprise, on the other hand, does not sell products. Instead, it provides services. The inventory for a service enterprise includes the tools and equipment needed to provide those services.

The key difference between a merchandising company and a service enterprise is that a merchandising company has inventory while a service enterprise does not. This difference can have implications for how the two types of businesses are taxed, how they keep track of their income and expenses, and more.

Other key differences

In addition to the production/non-production distinction, there are several other key differences between merchandising companies and service enterprises.

First, merchandising companies typically carry a large number of inventory items relative to service enterprises. Second, the cost of goods sold represents a relatively large portion of total revenue for merchandising companies. For service enterprises, on the other hand, the cost of goods sold is usually negligible.

As a result of these two factors, gross profit margin (gross profit divided by total revenue) is usually much higher for merchandising companies than for service enterprises. For example, a typical grocery store might have a gross profit margin around 20%, while a typical accounting firm might have a gross profit margin around 70%.

Third, since the cost of goods sold represents such a large proportion of total revenue for merchandising companies, they are much more sensitive to changes in sales volume than service enterprises. A 10% increase or decrease in sales volume will have a much bigger effect on profits for a company that sells merchandise than it will for a company that provides services.

Fourth, merchandising companies typically have shorter operating cycles than service enterprises. Operating cycle refers to the length of time required to buy or produce inventory and then collect cash from customers.

The bottom line

To understand the key difference between these types of businesses, it is helpful to consider what each type offers its customers. Merchandising companies sell products to their customers, while service enterprises provide services to their clients. The products that merchandising companies sell may be physical goods or they may be intangible items such as digital content or access to a platform. Service enterprises may offer their services remotely or in person.

While both merchandising companies and service enterprises are businesses that provide value to their customers, the key difference between them is in the type of value that they provide. Merchandising companies provide their customers with tangible products or intangible items, while service enterprises provide their clients with services. The type of value that a business provides to its customers determines its classification as either a merchandising company or a service enterprise.

Auther name

Jacky Chou is an electrical engineer turned marketer. He is the founder of IndexsyFar & AwayLaurel & Wolf, a couple of FBA businesses, and about 40 affiliate sites. He is a proud native of Vancouver, BC, who has been featured on Entrepreneur.comForbesOberlo, and GoDaddy.