Consciously creating or discovering new revenue streams can be the saviour of businesses and open up a wealth of opportunity.
Relying on one individual revenue stream can be a risky strategy.
It is of course how most of our businesses will start, but the sooner you can diversify the different services or products you sell, the longer your company’s life expectancy may be extended.
You may have heard me share about client concentration risk before. That is, that no one client should occupy more than 20% of your revenue.
We have also seen the usually far lower risk ‘industry concentration’ bite a few businesses during the Coronavirus lockdown. That is where a business sells more than 20% of their – potentially multiple – service(s) into the same industry. I know, no one saw it coming, but the risk was always there.
The same is equally true of surviving off of just one revenue stream. It can be risky.
I once heard the story – albeit almost mythical now – of a company whose business was built exclusively around the Car Tax Disc when overnight, the government moved “emissions duty” to a wholly digital evidence-based system.
You may be doing well now, but every product and service has a life expectancy.
Let’s Define Multiple Income Streams
To my mind, different revenue streams can mean the different ways in which you can earn revenue.
On researching this article, I immediately hit upon sites suggesting we “monetise our YouTube channel” and even “rent out our spare room through Airbnb,” but it is so much easier and more achievable than any of these.
And besides (from an accounting perspective) we are talking about operating income, not non-operating income like these click-bait suggestions.
To me, multiple revenue streams could be as simple as the distinction between project-based work and retainer work for say, a creative agency. The output is largely the same, but the process and payment structure quite different.
So, When Do New Revenue Streams Work Best?
New revenue streams work best, when they feel right.
According to Ansoff, there are two typical means of increasing your revenue streams. Well in fact, there are four ways, and he was talking about increasing volumes, but the same applies here.
Essentially, you can either sell your existing product or service to new markets. Or create new products or services for your existing market.
When it comes to investing in products, in conjunction with increasing revenue streams, look no further than Apple. They are the world leader in creating new product lines over the years with the iPod, iPhone, iPad, Apple Watch.
They are not just a set of interconnected products. Each product line will be accounted for separately, within its own department, and in healthy competition with one another.
Apple are investing in multiple revenue streams. When one sees its decline, like the iPod, others move into position.
The highest risk strategy would be creating new products for new markets. This is called diversification and is a very high-risk strategy. In theory there will be no economies of scale with your existing service, nor the ability to utilise existing expertise.
Let’s Get Personal
A good example of product development that has worked is that of Mark Master’s (The ID Group) and his You Are The Media (YATM) side project, that became something much bigger.
For those of you who don’t know – as if – You Are the Media is a marketing and media training and learning community. One side is a marketing consultancy (The ID Group), the other relates to learning (You Are The Media).
I asked Mark how multiple income streams have worked for him. Mark says, “The most important thing is buy in and recognising ways to create relatable products. For instance, my main business supports others to become a trusted industry voice.”
“We create the content and help businesses with their narrative, to create leads and revenue. The other side is to bring people together so we can all learn how to do it. This becomes inclusive of everyone, rather than working on a retained fee with clients. They work together, but sit separately.”
“Over time, I recognised there was an appetite for learning and how people can build their own media space and own their own audience. It is all about intent and a genuine belief that people can build something that is theirs, plus it feels good when it becomes part of a wider community. What started as a side project (it began as a weekly email in 2013), gradual elements have been introduced to support the learning.”
Additional revenue has been built around workshops, an annual conference and the live YATM Lunch Club events. Mark says, “People have a decision how far they want to invest. They can work on a much deeper, one to one level, or they can pick and choose what feels comfortable with them. For instance, joining the YATM community is free and events start from £10. Everything connects and that makes it easier for people to step forward in whatever way is comfortable for them.”
“When the coronavirus hit, whilst some clients pressed paused on activity, having other income streams has been immensely reassuring. A side project can become something much stronger. It can be done.”
What You Can Take From This
Here is what I take from what Mark has done:
- When Mark struck upon the concept of You Are The Media, it was very much the principle of investing in a product that would showcase his industry to a community.
- By creating the YATM vehicle Mark converted his market into a listening audience which quite quickly became a community
- The product was simply sharing content marketing as a concept and educating the community.
- The market was the same. But an audience and a community were built.
- It is a perfect synergy and yet wholly separate revenue streams
- Both revenue streams go some way to improving the service in the other.
- Like the Apple Phone and Watch, two stand-alone products, when you find a fit, they work equally well together
Your number one role as a business owner is managing and reducing your business risk.
Creating multiple revenue streams is a great place to start in reducing the risks in your revenue.
Who knows what gold you may also find at the end of that rainbow? The opportunity is there to deliver to a marketplace that want more from you.
This article was written in collaboration with Mark Masters.
The right Virtual Finance Director is as committed to your business as a full-timer, but without the overhead.
I’m Chris, and I help business leaders clarify, simplify and improve the financial performance of their business. Maybe I can help you too?