How to Minimize Risk with Multiple Revenue Streams

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Finance Insights for ProfessionalsThe latest thought leadership for Finance pros

Thursday, December 5, 2019

Multiple successful revenue streams is the goal for many enterprises - but how can you achieve this without adding new risk?

Article 4 Minutes

The best-performing enterprises are never satisfied with the status quo. And one way in which firms can keep innovating and driving their company to the next level is to develop new sources of income to supplement their existing business lines.

This could be large-scale investments into new lines of business or sectors, or something less dramatic, but potentially valuable, like identifying untapped ancillary revenue streams within your current operations.

There are many reasons why creating multiple revenue streams is good for your business. Aside from the obvious potential for increasing overall revenue, this can give you greater protection from unforeseen circumstances or market downturns. Even the largest enterprises can be vulnerable to industry downturns if all their eggs are in one basket, so protecting against such eventualities helps ensure strong cashflow, even if your primary business hits a dip.

However, going down this route also poses a number of challenges. If you don't manage the process carefully, you could find your resources stretched too thin, or struggle to deal effectively with the added complexity this can create, both within operational units and in the finance team.

Here are a few things to keep in mind to ensure the risks created by new revenue streams are kept to a minimum.

Don't go too wide too soon

It's understandable why a business would want to explore every potential revenue option available. Most firms will find there are a wide range of options out there for adding new sources of income, but it's important not to become overwhelmed. If you try everything at once, no option will get the attention it deserves, which will hamper the overall performance.

Instead, focus your attention initially on just one or two options. This will prevent your operations becoming overly complex and will give you a clearer picture of exactly where any additional costs and income are coming from. If you're changing many things at once, it can be hard to identify what’s having the biggest impact, but by focusing narrowly on a single specific area, you'll be much better placed to test any new hypotheses and easily see the effect of any changes or additions to your business.

Rely on data, not hunches

Many executives will still tell you that making the right business decisions is still mostly a matter of 'feel', with hunches and intuition still often playing a major role in determining the future direction of a company. Indeed, one study by Fortune Knowledge Group found 62% of senior executives trust their gut feelings when making strategic decisions.

There are benefits to this approach, especially if decision-makers can back up their hunches with years of experience in a given sector. But this might not be so useful when looking to diversify and open up new revenue streams, where this experience may not be so relevant. Therefore, it's essential you look closely at the many sources of digital data that are now available to help identify where the best opportunities lie and what the potential returns may be.

Don't be overly sales-focused

It may seem counterintuitive, but a heavy focus on sales can be harmful when developing a new revenue stream. An overly-aggressive approach can leave you lagging in other areas such as customer service and end up costing you more in the long run, even if it initially boosts your revenue.

If you bring on too many new customers in a new area before you have adequate infrastructure and support in place to handle them, you won't be able to deliver the level of service they expect, resulting in disillusioned customers who don't stick around.

Acquiring new customers is much more expensive than keeping existing ones happy - with some studies suggesting it can cost as much as five times more to bring a new customer onboard as to retain an existing one. Therefore, if you're suffering a high churn rate as a result of poorly-served, unhappy customers, this can quickly eat up any extra income you're generating.

Make deadlines - and stick to them

More revenue streams naturally means more work for the finance department, and if you don't put a clear plan in place to manage this, it will be easy to let other critical business tasks slide, especially if the instruction is to give these new operations a top priority in the implementation phase.

To avoid the issues this can cause, it's important to set strict deadlines for this additional work, and ensure they’re kept to - if a deadline is missed, it should be viewed as a lost opportunity rather than something to keep working away at, which will divert resources from other areas.

Making these deadlines challenging will give employees stronger motivation to meet these deadlines, and ensure that teams don’t spend more time than is necessary on new projects to the detriment of existing tasks.

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