Most people only have one stream of revenue; they receive a paycheck every other week from their employer, and that’s what they live off of. Some businesses operate the same way; they rely on only one type of revenue, and rely entirely on it to survive.
It’s often more beneficial to diversify your streams of revenue, both as an individual and within your business, much like you would diversify a portfolio of investments. But what does it mean to diversify your revenue streams, how can you do it, and why is it so important in the first place?
Outside the Business (Personal Income Streams)
As an individual, you can collect revenue from a variety of sources, including:
- Real estate investments. If you own rental property, you can collect rent from tenants, usually exceeding what you pay in expenses on a regular basis. And if you have a real estate license, you can find lucrative investment opportunities all over your city.
- Dividend stocks. Many stocks issue quarterly dividends, a form of profit sharing, based on the number of shares you hold. You can reinvest these dividends to spur growth, or collect them as a form of recurring revenue.
- Side businesses. You can also collect more revenue from side businesses, assuming you have the time to run them. For example, you could do something simple like sell artwork online or walk dogs for people in your neighborhood.
Within the Business
Within the business, you can collect different types of revenue with strategies like these:
- Sell additional products. Straightforwardly, you can sell different types of products. Depending on your current model, this could require a major rebranding effort and business expansion, or just take the form of an additional shelving unit in your physical retail space. Simple additions, like vending machines, can yield a surprising amount of extra money.
- Provide complementary services. You can also provide services that complement what you’re already offering. If people have to wait for one service to be completed, give them something to do while they’re waiting. If people have multiple needs they can address simultaneously by visiting your business, try to help them kill two birds with one stone.
- Sell merchandise. If you have a powerful brand presence and significant customer loyalty, you can try to sell merchandise. These items, often branded with your logo, can help you make an immediate profit and simultaneously help you spread brand awareness.
- Offer premium content. You can also offer premium content, especially if you already have a powerful content marketing strategy in place. Premium content is typically digital, like a multi-course educational program or an eBook, and downloaded in exchange for a small fee. Even if you’re only charging a few dollars per download, the extra revenue can be a major boon for your organization.
- Sublet or lease. If your business owns real estate, you may be able to lease or sublet it to another tenant. This is especially valuable if you currently own more space than you’re currently using; you can easily offset the costs of occupying it.
The Benefits of Diversifying Revenue Streams
If you diversify your revenue streams, both within a business and outside of it, you’ll see several important benefits:
- More revenue. First and most obviously, diversifying your revenue streams is typically additive; you’ll establish new ways of making money without sacrificing any of the old ways. Accordingly, you’ll stand to make more money overall. As an individual, this can help you build wealth and prepare for retirement, and as a business, you can use the extra money to expand as you see fit.
- Risk protection. Different sources of revenue also help you guard against risk. Let’s say your entire business depends on the sale of a single product—a type of fruit grown in El Salvador. One day, new trade restrictions and a pestilence in El Salvador make it impossible to obtain this fruit, so your business collapses. But if your business sold 10 different types of fruit and 10 types of vegetables, it would only lose 5 percent of its revenue in this scenario.
- New options for development. Diversifying revenue streams forces you to experiment with new angles and new ideas. You’ll discover a number of ideas that simply don’t work, as well as an abundance of highly lucrative options you might never have otherwise considered. If you find a particularly valuable idea, you could even make it the new direction of the business.
Diversifying your revenue streams doesn’t have to be perfect, and it doesn’t have to be all at once. Simply adding one new revenue stream, or reinforcing your existing revenue streams, can go a long way in protecting and improving your finances. Start small, and expand from there.
Interesting related article: “What is Revenue?“