There is a lot of thought/opinion/advice when it comes to diversification and creating different revenue streams within a particular business model. The “don’t put your eggs all in one basket” theory. And it sounds good. If one “stream” starts to dry up, another one will help mitigate total disaster.
Here’s the rub. Too often in a business, I see “multiple streams of income” become “throw a bunch of stuff on the wall and hope some of it sticks”.
When it comes right down to it, how many Revenue Streams does it take to have a great business?
The short answer is it only takes one.
I am a big fan of keeping things as simple as they can be, especially when you are first getting started. Get really, really good at your core business first. Build and refine the systems so you get predictable and repeatable results. It goes hand in hand with serving your “niche”. It’s really hard to be all things to all people.
Another common challenge I see is having too many offerings within what might be considered your “core offer”.
For instance, let’s say you own a gym. Besides 1-on-1 personal training, you offer semi-private, small group, and large group classes. Within each of those offerings, you have drop-in rates, class packs, monthly memberships, autopay memberships, and discounts for packages. That’s not uncommon. What is uncommon for an owner to know which one of the revenue streams/offerings and price points is actually making them money.
Consider this. Each offering you have adds some level of complexity to your operations. You may need more space, equipment, or coaches. Point of sale may become trickier as a prospect considers all the options. Tracking each “stream” requires more time and adds complexity to CRM and Accounting.
The really hard part? Deciding to close an offering when you realize you are not getting a return on investment. We tend to get ornery when it comes to having to make that decision. It may be because we think (or actually will) lose clients, and sometimes it’s because we are just a tad bit stubborn.
The bottom line is it is important to know which revenue streams are actually streams, and which ones are more like trickles, trending toward stagnation.
There are a couple of things to pay attention to here.
If you use a CRM, such as ZenPlanner or Mindbody, take the time to setup each of your offerings completely. You need to know how many clients are taking advantage of each offering, and at what price point. I’d rather have 10 clients paying me $20 a session for a small group than 1 client paying me $100.
You’ll also want to make sure your accounting software is setup to track each income category. This is especially true if you are not using a robust Customer Management Solution. It’s also true if you have offerings of totally different types, such as nutrition coaching or massage therapy. This is something our team of bookkeeping pros can help you get setup with.
Think of it this way too. Don’t let your “sunk cost”, which is the cost of what you have already invested into a particular offering, turn into “opportunity cost”. As human beings, our tendency is to think in terms of what we have already lost (sunk cost) and let it affect our present decision-making. This in turn tends to cause us to miss opportunities that are in front of us now because our attention is diverted. If you have a “loser” in your business, it’s probably time to cut the cord.
It can be hard, but once you’ve done it you’ll probably wonder what took so long.
Multiple streams of income (revenue streams) CAN be a good thing in your business. Your responsibility is to make sure that is actually happening.
Need some help evaluating? We can help.