4 Simple and Important Reasons for Revenue Diversification

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4 Simple and Important Reasons for Revenue Diversification

Summary:  This article leans into service-based businesses, but you will find applicable items for all businesses.

A service business is a fantastic way to make money, but it has its weaknesses. For example, if the economy takes a downturn, people are less likely to spend money on services, which can cause your business to suffer. There are ways you can protect yourself from these market fluctuations with revenue diversification strategies.

Most service businesses don't think about how they might be affected by an economic downturn or other factors that could affect their ability to sell services or their business. They plow ahead without considering what happens if things take a turn for the worse financially or if their business will be worth selling when they are ready.

There are four important reasons to consider revenue diversification in your service business to allow you to stay profitable through lean times and build a more marketable business when it comes time to sell.

What is Revenue Diversification?

Diversifying your revenue streams is putting the adage ‘you wouldn’t put all of your eggs in one basket’ to work in your business. It is literally making sure you have a variety of different ways (diversification) to bring in money (revenue).

Revenue diversification strategically boosts your business stability, health, and financial strength to withstand market fluctuations, capture untapped cash flow, and build a marketable business.

When you add multiple streams of revenue, you lessen your business dependence on any single stream of revenue.

Before we tap into how to execute revenue diversification for your service business, let's look at what NOT to do.

  • If you are having trouble getting enough clients, revenue diversification will NOT solve that problem. Likely, you have a service-market fit issue and need to look at your marketing message, sales process, and ensure that you solve a compelling problem that people will pay for a solution.
  • Revenue Diversification is NOT about being all things to all people.  Too much diversification casts too wide of a net.  The key to success in your business is to keep your revenue streams closely related to the problem you solve and be able to sell them using the same marketing message.
  • AVOID the grocery list. Have you ever listened to another business owner explain what they do, and in the process, they give you a list of 10 different things?  How many could you remember?  Likely not more than three. Having too many options for your clients creates confusion.  A confused mind does not buy, so keep things simple.

4 Ways to Boost Profits and Cashflow with Revenue Diversification

1. Capture additional revenue from existing clients.

The most expensive investment a business makes is the marketing and sales efforts that generate clients. You need to ensure that you are capturing as many clients as possible (boosting your conversion) and growing the average sale for each of those clients.

If you’ve become good at attracting the right-fit clients, you may notice that while you bring in great clients, there are a fair amount that could say yes if the price point was different.

In our cohorts, we call this a "Yes at Any Level Moment."  When you implement the ‘Yes at Any Level’ strategy, you create a spectrum of service (low-touch to high-touch) and price points (low-end to high-end).

One way to illustrate the concept would be to bring in three levels of service, such as:

  • Do-It-Yourself: Courses, Books and Guides
  • Do-It-With-You: Group Programs
  • Done-For-You: Personalized 1-to-1 Services

Your time becomes leveraged with the addition of the Do-It-Yourself and the Do-It-With-You levels of service and you are able to gain a greater return on your marketing and sales investment.

If the client is a good fit for the solution and you enjoy working with them, this strategy presents an opportunity to extend the lifespan of your client as they can work themselves up the levels. 

2. Target different audiences while delivering the same services

Revenue diversification allows you to take what you do to different target audiences, thus leveraging your resources.

In the speaking world, there is a saying, "Don't change your talk. Change your audience." 

You want to turn your eyes to markets and audiences who can identify with the problem your business solves and resonates with the marketing message.

While you may need slight tweaks to your marketing and sales message, you want to leverage 95% of what you already have so that you can maintain efficiencies.

For instance, one of my clients is a recruiting firm that specializes in ‘hard to fill’ positions where culture and people fit is a must.  Historically, that has been about filling accounting, financial, and marketing roles.

Because the problem they solve can benefit more than one industry vertical, we worked on expansion in other verticals, such as healthcare, government, and nonprofits. Healthcare and Government are more recession-proof. Non-profits were the focus because the work was in alignment with the vision, mission, and values of the business.

3. Creates opportunities to increase cash without increasing workloads

Revenue diversification creates opportunities to increase cash flow without increasing workloads, therefore increasing profits.

As a service business, it can be all too easy to serve our clients too well and over-deliver.

The habit of over-delivery erodes profits because you delivered more services than you received payment from your clients. 

When this is happening in a business, I look to breaking apart the service offering into valuable chunks.  These chucks should solve a problem for a client and prepare the client to solve the next problem they may have.

This is the Problem-Solution-Problem-Solution strategy. 

Over-delivery happens to the best of us.  In fact, it happened in my own business. A few years ago, when I had a prospective client interested in working together, I would offer to take a look at their business in a way that would assure both the client and myself that they were ready and that now was the time to scale the business.

What seemed like an easy and quick exercise quickly became a significant investment of time.  And I was doing it for free.

I realized that I was doing such a deep dive into their business that the result produced tremendous value for the business owner, even if we didn't work together in the future.

Thus, our Business Audit service was born. 

It is a deep dive into the performance of a business over three years, and we review everything from cash flow, profitability, team capacity, marketing, and sales performance to generate a report of recommendations that can boost cash and get the business to grow and scale.

This is a stand-alone service, delivers value to the client, and acts like a qualifier for my highest service offering.

4. Strategically reduces over-concentration in one market or one client

Revenue diversification strategically reduces over-concentration in one market or one client making the business healthy and more marketable.

Have you thought about one day selling your business to fund your retirement? 

Many business owners do, yet very few build a business worth selling.  It surprises many business owners that they can build a service business to multi-7 figures, only to find that the business is worth 25% of the revenue.

Revenue concentration in a few clients or one market is one of the major impacts of a business's valuation.  I’ve seen first-hand with clients who have gone through the process of having their business valued. I can tell you this – as a service business, if your revenue is concentrated in just a few clients, it will tank your valuation. 

To bolster your valuation, you need to demonstrate that your revenue is from a diverse client base and is secure through contracts and recurring revenue.

If your dream is to sell your business one day, start building a business worth selling today.  It will boost your business today and bolster what you can sell it for in the future.

Looking for more ways to grow your business? Revenue diversification is a strategy that allows you to do what you do best (and love), target different audiences, leverage your resources, and boost your profits and cash flow.

The best part about this? You can work on it at almost any stage of your business journey.

Think you might be ready to scale your business?  Take the Scaling Rich Personality Quiz and see if you have what it takes to Scale Richly today!

If you are looking to create more predictable profits so you can grow and scale without burnout, let’s chat. Find time on my calendar so that we can make it happen.

About Leslie Hassler

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