In today’s fast-paced digital world, companies can no longer put all their eggs in one basket and rely on a single revenue stream. They need to explore different revenue streams and not stay siloed within one lane.
Every company loves their stable, loyal customers—ones who make up 80% of their revenue. But this is where concentration risk seeps in. What if internal or external circumstances change? How equipped is the company to deal with a dip in revenue? Do they have diverse revenue streams to make up for the loss?
Companies are constantly trying to increase their revenue streams to avoid concentration risk, and it’s been paying off really well for most of them. The international financial services company GFT Technologies, in a bid to embrace diversification, worked on widening their client base and in their first quarter of 2019 saw a 19% increase in revenue without their top two clients.
Here’s why you should diversify and tips for developing multiple revenue streams.
#1 Sustainability—strengthening your customer base
Prioritize adding more clients and customers to your roster, but also look for different ways to deepen engagement with your existing customers by diversifying how they engage with you.
Consider offering additional value through access to premium, gated content on your website, exclusive content on a membership site, and monthly or annual subscriptions for your products and services.
For example, big box retailer Costco generated $3.35 billion revenue from their membership site in 2019, an 8% increase from 2018. This membership fee revenue is almost entirely profit, allowing them to keep the margins on goods low, which in turn drives more loyal customers.
#2 Stability—less risk with revenue
Companies are well-served by taking the time to draw up a list of core assets that can be leveraged to discover new revenue opportunities.
One of the ways to do that is by monetizing your company’s existing data assets and generating new sources of revenue. As long as the data is ethically sourced, packaging and selling data and creating new partnerships can increase efficiency internally and reduce costs. Companies can also create new data products and enable product enhancements to uplift revenue.
Lotame outlines excellent ways companies can monetize data internally. From creating better, more targeted audiences for marketing and increasing average CPM of ads to reducing remnant inventory and turning it into premium ad space, there so much companies can do with their existing data.
Furthermore, in a recent survey by NewVantage Partners, 91.6% of executives said investment in big data and data analytics is increasing, and 87.8% said there is more urgency to invest in these technologies.
#3 Continued growth—survive and thrive
A company’s goal is not just to survive, but also to thrive.
Use data to investigate new products and services that appeal to your current customers and help widen your customer base. British Airways, for example, uses their customer loyalty data to make targeted offers and create a more positive experience for flyers.
Offer products that augment your services. If you’re a training or consultancy company, you can offer workbooks or templates to your customers. You can also look into creating a customized mobile application that compliments your services and products.
Create new partnerships that are mutually beneficial. You can buy or merge with companies, as well, or spin off a new company once it starts generating revenue.
As a result, you’ll also experience these benefits:
You can expand your business without increasing your team, as you will be utilizing and leveraging existing resources that would’ve otherwise been wasted.
You can avoid employee burnout. In a study by Harvard Business Review, 25% of entrepreneurs said they suffered from moderate burnout. Diversifying revenue streams lets you enjoy your work without stressing about a dip in revenue, which in turn reduces burnout.
As Michael Iverson of Trillium Financial says,“Diversify your business to the point that no single customer is responsible for more than 15% of revenues. Until you achieve that goal, the possible loss of your largest customer carries significant financial risk to your business.”