Service & Trading Businesses: Definitions & Examples

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  • 0:03 Going Shopping
  • 0:51 Trading Businesses
  • 1:57 Service Businesses
  • 3:20 Trade vs Service Businesses
  • 4:27 Lesson Summary
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Lesson Transcript
Instructor: Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

Are you buying a new shirt or picking up a shirt from the dry cleaners? They're both businesses dealing with the same product but in different ways. In this lesson, you'll learn the difference between trade and service businesses.

Going Shopping

Meg and her mom have decided to go shopping for the day. Their first stop is at a shopping mall to check out some new jewelry, clothes, and shoes. After they leave the mall, they swing by a grocery store and then an arts and craft store for some paint for a weekend project. Their last stops before heading home were to the dry cleaners to pick up some laundry and the bank to make a quick deposit. All in all, it was a successful day of errands and shopping.

Despite the obvious differences in the types of businesses they visited, from clothing stores to a bank, what Meg and her mom experienced was two distinct types of businesses known as trading, or merchandising, operations and service businesses. Do you know the difference? Which store falls into which category? Let's find out.

Trading Businesses

Trading businesses, also known as merchandising businesses, are those that sell tangible merchandise. That means you can purchase goods such as socks, potato chips, or books and magazines from these vendors. What other characteristics do trading businesses have? Consider these:

  • Trading businesses receive payment from customers for merchandise purchased.
  • Trading businesses buy and manage inventory, such as products placed on store shelves.
  • Trading businesses sell a variety of products, accounting for sales through a cash register or point-of-sale system.
  • Trading businesses may have back stock or excess inventory in a warehouse or stockroom.
  • Trading businesses earn revenue and profits from the merchandise they sell.

Trading businesses may include two different types of sellers, including retailers, who sell inventory to the general public, and wholesalers, who sell merchandise to other businesses at a reduced rate. In turn, that business, typically a retailer, makes those goods available to the public.

Service Businesses

The simplest explanation of a service business is one that doesn't sell tangible goods. Huh? How is that? How can you be in business and not sell a product? It's simple - because you sell a service.

A service business, unlike a trade business, does not stock inventory or merchandise, but they may have various tools, resources, and supplies at their disposable to get a job done. Think about it: if you're in need of the 'services' of an attorney and you visit their office, are they selling items from a typical storefront operation? Of course not. They're offering their skills, experience, and expertise for sale. Maybe you're looking for a house cleaning service and you call several potential candidates. These individuals are not selling window and toilet cleaner; rather, they'll bring window and toilet cleaner with them as they offer the service of house cleaning for your approval.

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