If your business needs more diversified revenue streams, the solution to your problem might very ... [+]
When it comes to driving revenue for your business, diversification can be a powerful tool, helping your brand account for changing customer preferences to strengthen your own position in your niche. While there are often brands that launch with a focus on a single product or service, most companies diversify. And while a business’s own internal efforts can help it diversify, many successful revenue diversification projects are often the result of a strategic partnership.
Common Methods for Revenue Diversification
The concept of revenue diversification is nothing new. Companies have continuously introduced new products to bolster sales. Just look at a timeline of breakfast cereals and you’ll see that companies in this niche have continually introduced new products to diversify. Even companies that start as a single offering diversify to create new sources of revenue. For example, Roku (which started by selling a streaming player that could connect to ordinary TVs) diversified its revenue through digital advertising and content distribution fees, sales of smart sound bars and recently launching its own TVs.
Of course, introducing new products is far from the only solution for revenue diversification. Many brands have diversified their revenue by selling products online instead of just in-store, offering workshops or online courses and adding subscription services. Even restaurants are starting to offer subscription services in an effort to increase customer loyalty and generate new sources of income.
Such efforts are clearly in line with consumer preferences. Surveys reveal that 86% of adults between the ages of 18 and 34 subscribe to a service. Keep in mind that only 59% of that same group say they have a video streaming subscription — so many of these subscriptions are for things other than Netflix or Hulu. The average American spends $219 per month on subscriptions — representing significant income potential for brands that enter this arena.
How Strategic Partners Can Help Diversification Efforts
While diversifying your business’s revenue certainly offers noteworthy opportunities for growth, actually turning an idea for diversification into a product or service that your customers will pay for isn’t always easy.
Organizations that find they lack essential resources, capacity and expertise should consider looking externally to build these capabilities through a partner. For example, Niagara Bottling is a leading beverage manufacturer in the U.S. In addition to selling its own branded, bottled drinks, it supplies private-label bottled water for a number of grocery and convenience stores, as well as wholesale customers at some of the largest brands in the U.S.
Gunangad Singh Maini, a supply chain senior analyst within Niagara’s leadership development program, shared his perspective on how partnerships can help diversify revenue.“When you don’t have the machinery or expertise to produce an item yourself, investing in the necessary equipment and personnel can unequivocally become extremely cost-prohibitive,” he explains.
“On the other hand, when you work with a partner and leverage their expertise, you don’t have to worry about all of those upfront acquisition costs. You can lower the cost of entry, so that you can start generating a profit from your diversified revenue source that much sooner. When you don’t have the resources, capacity or expertise, a quality partner can provide all of those things to help you expand your lineup.”
Creating Successful Strategic Partnerships
A successful strategic partnership doesn’t just depend on finding someone with the necessary resources and expertise. As with other types of strategic partnerships, partnerships that are created with a focus on revenue diversification must share key foundational traits.
First come open and transparent communications. Potential partners should understand each other’s’ goals and vision so they can develop a mutually beneficial shared goal for their partnership. Trust is crucial for ensuring that both parties are fully aligned and that there are no misperceptions regarding what is desired from the partnership.
Businesses must also be willing to stay out of their partner’s way. If you enlist the help of a partner to help you set up a subscription service for your brand, it’s only natural that you would set some parameters or guidelines for what you want it to look like.
But this doesn’t mean that you should micromanage their programmers. Trust entails relying on the known expertise of each party to achieve desirable outcomes. With a foundation of trust, open communication and a shared vision, you can ensure that revenue diversification efforts lead to true growth.
Prepared for the Future
History is filled with examples of failed companies that struggled to diversify. The collapse of Blockbuster is largely attributed to a reluctance to innovate alongside new entrants like Netflix, but its failure can also be linked to the fact that it relied on a single source of revenue: in-store video rentals.
On the other hand, companies that diversify their revenue reduce their risk, increase their financial stability and create new opportunities for customer growth and retention. They become better equipped to respond to challenges affecting one revenue stream, gaining the flexibility needed to deal with an ever-changing marketplace.
