In business, products that are sold, traded or otherwise provided to consumers or other companies can be classified as either goods, which are tangible, or services, which are intangible. Most countries measure their economies on the production and consumption of both physical goods and intangible services. Some companies provide both goods and services, and others provide only one or the other.
Some goods are consumed, which means that they are gone, ineffective or unusable after they have been used once. Food is one example of a good that is consumed and must be replaced. Toothpaste, hairspray and deodorant are other examples of goods that are not practical for consumers to use more than once — the amount in the container is reduced as it is used, until it is gone and must be replaced.
Products that are not consumed as they are used will last longer before needing to be replaced. Some wear out after a few weeks, months or years, and others might be replaced by improved products before they wear out. Clothing can be worn many times but eventually can wear out or become out of style. Electronic devices might stop working after a few years, but consumers often upgrade to newer or better devices before then.
Other goods are more long-term in nature and might last for many years or even decades. Furniture, dishware and houses are examples of durable goods that are intended to be used for extended periods of time. Some products, such as automobiles, can last for a very long time if they are maintained properly.
Services are intangible products — those that cannot be seen or touched — that are provided to consumers or other companies. A physician provides healthcare to patients. Communications companies provide services such as Internet access, television programming and the ability to make local or long-distance telephone calls. Banks provide a range of financial services to customers, such as checking accounts and investment opportunities. Other companies provide services such as lawn care, plumbing, home repair, business consulting or transportation.
Often, goods and services are provided as a unified package, providing a well-rounded and attractive option for the consumer. For example, a restaurant can sell food items, which are goods, as well as provide services — the food is prepared and served, the table is set and cleared, and entertainment might be provided during the meal. Other companies sell goods and provide maintenance or repair services for those goods, or they might offer classes to teach consumers how to use those goods.
Most countries depend on the production of goods and services to power their economies. They also often impose taxes on goods and services to create revenue for their governments. Taxes sometimes are different for goods and services that are exported than for those that are consumed domestically. There also usually are taxes on goods and services that are imported from other countries. Some countries impose higher taxes on imports so that domestic goods and services will be more attractive to consumers.
Additional Difference Between Goods and Services
You’ve learned that goods are tangible products and services are intangible. However, this doesn’t fully explain the differences. After all, you can buy a digital product. In a sense, that is just as intangible as a service, but it is more akin to a good in other ways. These are a few ways you can differentiate them:
- Tangibility: Many goods are tangible, meaning they can be physically interacted with. For example, a car is a good. Conversely, when a mechanic repairs the car, that is a service.
- Retained Value: Although services are valuable to customers, they do not retain intrinsic value after they have been performed. Thus, you can’t return a service or resell it. Conversely, a good can be returned to the seller, sold to another owner or kept as an asset.
- Ownership: When you buy a good, it is now yours. A service, however, does not transfer ownership. Instead, the provider of the service continues to “own” the service and the financial benefits from providing it.
- Quality: The measurement of the quality of goods tends to be much more complex than services. Whereas the quality of a service is largely the benefits that it offers immediately, factors such as reliability and resale value impact the quality of a good.
These differences help with evaluating whether something is a good or a service, especially when the simple tangible/intangible divide is not as obvious. Of course, even with these characteristics, it isn’t always simple to differentiate between them.
Examples of Goods and Services Provided Together
As mentioned, sometimes goods and services can be combined, which can make it difficult to determine exactly what is what. For example, if you buy a computer, that is a good. Then, if you bring it to a repair shop to get it fixed, that is a service. However, what happens if the repair shop replaces the power supply as part of the repair process? Typically, the repair service and the power supply (a physical good) would be considered separate. Nonetheless, this can make evaluating the difference between the two more challenging.
If you look at an invoice from a repair service, typically you will see parts and labor listed separately. The former are goods, and the latter is a service. Although you are primarily purchasing repair services, you are also purchasing goods to make the repairs possible.
The reverse can happen also. For example, you may buy a new refrigerator and have the store provide an installation service. In this case, you are primarily interested in buying a good (the fridge) but are also receiving a service. Sometimes, the installation service may be provided for free as part of a marketing promotion. Nonetheless, it is still a service, even if you aren’t paying directly for it.
Commissioned work is another common edge case. Perhaps you want to get some photographs of your pets, so you hire a photographer to do a photo shoot. Although taking the photographs is a service, the main value comes from the photographs (goods). Of course, if you just bought some art in a store, you wouldn’t consider the creation of the art to be a service. So, commissioned work can fit into both the good and service definitions, depending on how exactly it is negotiated and provided.
Goods and Services in the Digital Realm
Digital products also create some interesting challenges for the definitions of goods and services. If you purchase a piece of software, it acts almost entirely like a good other than being intangible. You own it (typically, you own a license to the software, not the software itself), it has retained value and you would evaluate its quality like a good.
Some software is provided as a service (you pay a subscription fee to use it), and other software comes bundled with updates and support as services. Thus, the line between a good and service can get quite blurry in the digital world.
This can be very relevant for determining the tax status of digital products. Fortunately, as computers and the internet become ever more omnipresent, laws are being updated and regulatory bodies are issuing guidance to help make it easier to determine the legal status of various digital products.
Differentiating Goods and Services
It may not seem all that important to know the difference between goods and services. As mentioned, there are tax implications. However, if that doesn’t concern you, why do you need to know? In a sense, the answer is that you don’t need to know. Nonetheless, if you are selling something, it is good to know the rules, even if you intend to break them with a combined good and service. It will help you make more informed decisions.