It’s an undisputed fact that the local and global economy was already on shaky legs (some believe a recession) prior to the pandemic which came down on us all like Thor’s proverbial hammer in 2020.
In its wake the pandemic created a huge economic turmoil and, while some businesses boomed with record-breaking profits, most found themselves battling to keep the doors open. Many folded and closed up shop, retrenching hundreds of employees.
As I write this, vaccination programs are being rolled out across the globe and in certain countries the pandemic seems to be slowly easing back (I say this with abated breath).
In the aftermath of the economic tsunami, businesses of all sizes are clawing their back and trying to create commercial momentum.
During December 2021 I wrote about trends and predictions to watch out for in 2022. You can read it here.
But progress and rebuilding of businesses (and the economy) is a slow burn as it tries to revive eradicated revenue streams, deal with changed consumer behavior, rethink out of sync processes, and coping with new technologies.
What I aim to achieve with this article, is to address the question of how a small to medium sized business can create additional or new sources of revenue.
The traditional costs-down-income-up model remain a good approach but creating more income (revenue) is more than simply doubling up on sales.
In its wake the pandemic created a huge economic turmoil and, while some businesses boomed with record-breaking profits, most found themselves battling to keep the doors open. Many folded and closed up shop, retrenching hundreds of employees.
As I write this, vaccination programs are being rolled out across the globe and in certain countries the pandemic seems to be slowly easing back (I say this with abated breath).
In the aftermath of the economic tsunami, businesses of all sizes are clawing their back and trying to create commercial momentum.
During December 2021 I wrote about trends and predictions to watch out for in 2022. You can read it here.
But progress and rebuilding of businesses (and the economy) is a slow burn as it tries to revive eradicated revenue streams, deal with changed consumer behavior, rethink out of sync processes, and coping with new technologies.
What I aim to achieve with this article, is to address the question of how a small to medium sized business can create additional or new sources of revenue.
The traditional costs-down-income-up model remain a good approach but creating more income (revenue) is more than simply doubling up on sales.
WHY NEW SOURCES OF REVENUE?
Just to confirm; revenue is income generated from business activities and these activities may, amongst others, generate the following kinds of revenue:
• Revenue generated from renting out property and assets.
• Revenue generated from interest bearing assets and investments.
• Revenue generated from selling goods and services.
• Revenue generated from dividends on investments.
• Revenue generated from donations and sponsorships.
New sources of revenue mean new ways to create income in your business and is more effective than just increasing sales, especially when the product or service offers very little or no real unique properties or value to the customer.
Put differently, clients know what to expect when they go to the dentist for example, what they don’t expect is to receive a bouquet of flowers with their root canal – but what if you were a dentist who did?
Let’s be frank though; will a new source of revenue actually make you more money?
THE IMPORTANCE OF UNDERSTANDING THE DIFFERENT REVENUE MODELS
The answer is it depends on you making use of the correct revenue model. There is a bit more to it than just magically creating new products and services for fun. It has to make business and financial sense.
All new revenue streams must be based on some financial (mathematical) logic or a methodology which can explain how the revenue stream will translate into more money. If the numbers don’t add up, it won’t work.
There are 4 main revenue methodologies you can consider:
1. Transactional – You deliver a service/product, and clients pay you a fixed rate.
2. Outcomes – You deliver a service/product based on a specific time frame or volume, and the client pays you for achieving the agreed quantities. Examples are payroll services, accounting services, manufactured goods, transportation etc.
3. Project/Performance – You deliver a specific end-result, and the client either pays you in phases or upon final completion. Examples include construction projects, marketing campaigns, training programs etc.
4. Reoccurring – You deliver a service/product, and the client pays for as long as they make use of the service/product. Examples include subscription service (Netflix), renting, licensing, franchising, paywall (podcasts), broker fees (stocks and securities).
When developing a new source of revenue, it would be wise to select at least one of the above methodologies when developing a revenue source.
So far so good, but we’re still not there, where do we go from here?
STRATEGIES TO CONSIDER AS IDEA GENERATORS TO CREATE NEW SOURCES OF REVENUE
The next important step is to decide which strategy will best serve as the blueprint for the development of the new revenue source. Afford me a brief opportunity to run you through some of the more important strategies that can be employed as our main idea generators.
Here are 5 key strategies to think about:
1. Business Modeling
This strategy aims to improve an existing business model or to implement a new one. Here we consider things like pricing models, payment terms, service and product offerings, business structures, hierarchy of business processes and operations management.
Essentially this strategy analyses the business in its entirety and checks if the business is operating at optimum levels.
We use this kind of strategy for a business that has reached the end of its shelf-life and needs a total rethink and rebrand (assuming it can still make a profit and it owns a viable percentage of the current market).
2. Technology
Making use of new technology as strategy to create new revenue comes down to creating new customer experiences by employing new technology within existing products and services.
The logic is based on improving productivity and creating more opportunities for sales and thus increase revenue.
This strategy is useful to attract new tech-savvy customers and to introduce them to novel ways to do business.
This means creating automated and convenient trading platforms with built-in reporting structures and performance measures to continuously improve the customer experience.
3. Research and Development (R&D)
A Research and Development strategy aims to create new products and services by means of research and development.
The R&D can either come from within the business or may be raking place on a larger scale within a sector or industry.
This strategy is an effective way to develop never seen before product lines and services, and while it is costly and risky, it also promises enormous profits if you get it right.
Think about successful companies such as Apple, Tesla, and Microsoft as good working examples.
Solid R&D programs can also potentially attract venture capitalists, equity partners or to open the door to Merger and Acquisition (M&A) discussions, which can all lead to additional revenue and available cash reserves.
4. Innovation
Innovation usually follows closely on the heels of Research and Development. The only difference is that in many instances, innovation speak to a broader spectrum of industries and sectors and may also impact other sectors.
Think for example about the development of biofuels and the impact it’s had on the economy and multiple sectors.
As with R&D strategies, innovation strategies have the potential to offer large payoffs as a business capitalises on new industries and opportunities. Examples are crypto currencies and NFT’s (non-fungible tokens) as new investment opportunities and potentially new related products and services.
5. Leverage
Leverage, also known as an “up-sell strategy”, is a technique used by businesses to sell additional products and services to an existing client base.
It is usually offered under the guise of product improvements or additional add-ons only available to loyal customers, which of course is everyone.
I have described this strategy rather tongue in cheek but using leverage as a strategy to create new revenue sources can be a highly effective way to create new products and services.
A client base is also a valuable resource to reach other markets. Think for example at how successful referral network marketing worked to sell Virgin Active memberships to friends and family.
Or how effective medical aid scheme customer reward programs have been in convincing their members making better lifestyle choices, effectively saving them millions in medical claim payouts.
Let us now consider how to make these ideas practical and how we can translate these processes into new revenue options for a typical small to medium sized business.
EXAMPLES OF NEW SOURCES OF REVENUE IN A SMALL TO MEDIUM BUSINESS
At this point I think it is fair to say we now have a good working knowledge of revenue as a business activity and that we have looked at it from a number of different perspectives.
But how do we translate this information into real-world business activities that will generate more income?
Below I have listed 5 examples of new sources of revenue which could be considered by small to medium business owner, irrespective of the sector in which they operate:
1. Create New Products and Services
The easiest way to increase revenue is by creating new services and products within your business and your current sector.
If you apply your mind and involve your employees, you can quickly create a long list of creative ideas.
Run an idea-of-the-month campaign and handsomely reward new business ideas. Create a culture of new thinking and openness to discuss typical client complaints or requests.
These are golden opportunities waiting for you to explore and develop them into products and service your customer will be too happy to pay for.
2. Take your Business International
One of the difficult challenges businesses had to deal with during the pandemic was to keep their doors open while being subject to lock downs, restrictions, closed airports and ports.
Business owners were forced to create remote work spaces to ensure staff and teams can continue working.
This also meant that many businesses had to adopt the necessary technology to move to digital platforms and to create convenient customer interfaces.
Effectively many businesses can now take their products and service to international markets with greater ease.
3. Create Referral Partnership and Cooperative Agreements
This is an easy way to use your existing business relationships and informal partnerships to create referral revenue streams from them.
This will require that you commit your intentions to paper and that you create the necessary internal and external administrative controls.
A practical example is where a sound electronics retailer, refers clients to a specific installer technician and receives a referral or partnership fee in exchange for the business.
Other examples include sales commissions paid to motor vehicle sales consultants when selling ad-on products such as a once off paint and polish refurbishment packages as part of the sale.
Open and honest communication is the name of the game. Make sure your different service divisions know about special agreements or referral arrangements between your business and any other industry partners.
Make sure the system is not mis-used or that you don’t incentivise corrupt businesses practices.
4. Offer Consulting and Training
All businesses possess critical skills and knowledge that they have earned through making mistakes, trying new ideas and dealing with clients.
In specialised fields, for example solar energy or off the grid electrical systems (to name an example), even more so.
These critical skills and knowledge have a particular value in the market place and non-sector businesses, who don’t pose a competitive threat, will happily pay you a handsome fee to learn from your experiences.
Take the solar energy business as another example. They can offer informative talks or a basic orientation course to property developers or financiers of electrical systems.
Information about how such specialised systems are designed and constructed, and the typical questions consumers ask may turn out to be valuable to other.
In many instances those who attend such training and consulting sessions turn out to also become clients.
5. Follow Current Market Trends
Most of the practices we find today, were once trends. It started with a few people doing it, and more followed, and today it is standard practice. Think about selfies – I mean come on, who hasn’t taken a selfie?
There are numerous market trend champions, organisations and specialists who keep a watchful eye on new ideas, concepts, products, services, and consumer behavior which may become a standard practice in future.
Following these trends in your industry might very well become your biggest source of new revenue if you can spot them on time.
Think about the old example of how 80’s camera manufacturer Kodak missed the digital camera revolution and how others have capitalised on the new technology and made millions of new revenue streams.
CLOSING REMARKS
It’s easy to get carried away with a list of new year’s resolutions and an even longer list of novel business ideas, thought out while on vacation.
The reassurance of a clean slate offered by a New Year, and renewed motivation, can fool us in believing that anything is possible; but it’s not, and we should be realistic about our own expectations and the realities of our businesses.
Come the first few days back at the office we are suddenly reminded of why we needed a break in the first place! By the end of the first week, our memories of sandy beaches, coconut scented sunscreen, afternoon naps and seafood platters are but a faint memory.
Don’t get carried away by the alure of increasing your revenue with an endless list of unrealistic ideas.
You can only effectively introduce one, maybe two, new revenue streams in any given year. If you are a start-up or a small business, even less so – keep your ambitions within reason.
With new functions, products, and services, come new challenges which you didn’t have to worry about before. New things create new problems.
Bear in mind that there is no such thing as a free lunch. Be patient with yourself, your team, and your energy as they all come in short (and precious) supply.
Remind yourself to have also have a bit of fu along the way. Make time to rest and to recharge and feverishly seek to strike a good work-life balance.
Be magical, and I wish you all a prosperous 2022!