Selecting Additional Revenue Streams

Generating revenue is essential for your business. 

Revenue streams are varied, and choosing the best one(s) is critical to your business’s success. 

Having multiple revenue streams gives you the ability that if one source is suffering, others are stronger, and you will not run short of cash.

Let’s explore the different revenue streams and consider which ones you should select to diversify your revenue sources.

Product Sales – Customers buy your offering outright and own it. Some examples are a carton of milk, a toothbrush, and a folding mattress. Brick-and-mortar retail companies and/or e-commerce companies use this revenue stream.

Plusses include: lower ticket items are easier to sell; higher ticket items provide excellent revenue all at once.

Minuses include: every product demands that it be produced, stored, and shipped; products often have lower profit margins; and there are limits on how inexpensively you can produce it, even with higher volumes.

Services and Consulting – Talent and expertise are saleable. Examples range from computer geeks that help you with your technology needs to hair salons that improve their customers’ appearance. 

Businesses can provide various services, each providing revenue to the company. Services are a great way to add revenues without creating new assets, but as the billable hours mount, you need to add people. Survey your customers on their needs and wants to identify what services to add, then use your existing in-house expertise to deliver the service(s).

Benefits: you can charge more as the services are personalized, and you need fewer customers to reach your revenue goals.

Drawbacks: services are not easily scalable, and you may pay for talent not being used as services are based on billable hours; customer service has a more significant role; and finally, you are more responsible for the outcomes your customers get.

Subscriptions – Customers pay a recurring fee regularly (monthly, quarterly, yearly) to access a product or service. Some examples of subscriptions are Amazon Prime and gym membership, enabling customers to have access as long as they pay their subscription fee.

Pros include: if you can accurately estimate your customer churn rate, new customers, and monthly recurring revenue, you can calculate how much revenue your business will generate next month; if your marketing and sales efforts slow or stop, you can still generate revenue from existing subscribers; and it is often easier to close subscription sales as customers perceive the upfront cost and risk is low.

Cons include: if your customer acquisition cost payback period is more extended than you retain your customer, you will lose money; you may need to invest resources in customer service and other areas to avoid high cancellation rates, and revenue can be uncertain during the start-up phase.

Advertising – You can sell advertising space via your customer channels, especially if you have a large and loyal customer base or audience. For example, you can generate advertising revenue if you have a podcast or Twitter handle that millions of people regularly follow and engage with you, especially if they retweet.

If you have a sizable email list, you can partner and charge other brands seeking your target audience to advertise. It does not have to be online; high-traffic areas like buildings and event venues charge for advertising to be placed for people passing by or in attendance to see.

In your favor: ads can be highly lucrative if you have a large customer base or following, and this revenue stream is easy and inexpensive to start and maintain.

Potential disfavor: if your audience is small, the revenue will be small; ads can distract from your offerings, and you will be associated with the brands you advertise, so choose carefully.

Usage fees (based on consumption) – How much a company charges for using its service. The customer pays you based on the amount they use the service. Some examples: a phone company charges customers for a certain number of minutes and per month of data; a car rental company charges the customer based on miles traveled; and a postal carrier charges you to deliver a parcel from one location to another.

Essentially, with usage fees, the more customers use a service, the more they pay. 

+ +: pay for what you use appeals to many customers; a low barrier to entry; provides the agility and flexibility to respond to changing business and customer needs quickly; enables businesses to grow faster with price points that are attractive to a more extensive customer base; eliminates or shortens purchasing cycles; higher net dollar retention that a more traditional subscription-based model.

– -: sticker shock can cause customer dissatisfaction or churn; low switching costs; creates revenue (and cash flow) insecurity; and the metric used for scaling is not always well understood by customers. 

Licensing – Income generated through customers’ approved usage of your company’s products, services, or intellectual property. An example is software licensing, such as for Microsoft Word. You can also grant a customer to use your company’s copyrighted material (such as images, characters, songs) or trademark.

Some advantages: licenses run for the longer term, so there is less churn, and your business gets more money upfront from purchases of its license(s) products.

Some disadvantages: customers usually buy once unless you create or improve the product, such as movie characters or software releases; and if you do not make sales, your revenue will be nothing.

Renting and Leasing – When you rent or lease assets as a revenue stream, you give exclusive usage rights to the buyer for a specific length. Some examples of rental companies are designer clothing company Rent the Runway, moving truck company U-Haul, and vacation rental company Vrbo, as well as real estate leasing companies. You could rent it out to freelancers and/or other businesses if you have unused office space. Renting and leasing businesses often have other revenue streams such as subscription fees and product sales.  

On the positive side, you can generate significant revenue from a single in-demand asset over time, and customers do not need to justify long-term purchases, so making sales easier.

On the flip side: it can take a while to make back your money after investing in your asset, especially if it is not in demand (think rental cars during the early days of COVID); you will need to account for the depreciation of your asset, and over time wear and tear will happen, so maintenance is essential.

Brokerage Fees – Involves a business that connects buyers with sellers and collects a commission on the resultant transaction. Advances in eCommerce allow this brokerage business model to thrive since virtually any product or service can now be ordered online, and Amazon brings buyers and sellers together and collects a fee from sellers. Companies like Fiverr and Upwork make money (a percentage of the fee) from matching freelancers with clients who need their help; in this case, as the matchmaker, it collects a fee from the buyer who gains access to a multitude of qualified professionals and the freelancers matched with clients.

Upsides include: once you can match parties together, it becomes a relatively low-effort revenue stream since you do not have to deliver products or services, and there can be less friction for sales as customers do not have to pay upfront, you take a cut from their transactions.

Downsides are: setting up matching can be expensive and time-consuming, you have to be willing to put forth the resources to make it work and then get buyers and sellers to use the matching service, and brokerage fees are currently only used in a few industries.

When selecting revenue streams for your business, a few factors to consider: your revenue stream should connect with your value proposition, and the value that your product or service delivers should align with your revenue streams; and analyze how your competition generates revenue, study their strategies, mistakes, and wins to help you determine your revenue streams. 

Further, you want to consider who your customers are, what your assets are, and how you can and want to make money.  

Think about your customer and market fit; consider how you interact with them and their preferences. Is another revenue stream additive to what you are already providing? Survey your existing assets and judge the most effective way to add income; the best revenue streams add the least complexity to your current business structure.  

Also, consider if you want to expand your assets to bring in revenue; but make sure it will provide what your customers want/need. 

Finally, think about whether the revenue stream is something you can and want to provide. Ensure the revenue stream(s) are in sync with your business purpose.

Consider new revenue streams for your business today to add income and make your business more resilient to tough economic times.

P.S. Sponsorship: If you are a non-profit, sponsorships can benefit organizations of all types and sizes. Advantages include: additional revenue in the form of contributions; in-kind donations of items and/or services; partnership with a company whose brand and values align with your organization’s; both parties get exposed to each other’s audiences; and partnering with a well-known company can add credibility to your organization. When identifying and securing potential sponsors, do the following:

  • Look for companies who serve a similar demographic as your organization.
  • Identify who has sponsored similar organizations or events in the past. 
  • Ask your staff, volunteers, members, donors, and board members if they can think of any potential sponsors. 
  • Examine your significant donors – do any of them own a business or work for a company that would be a good match. 

Before approaching a company about a potential partnership, think about what you can offer them in return, such as increased awareness and exposure to members of your community or public recognition as a socially responsible, purpose-driven company that supports a worthy cause.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: