Revenue, The Fuel of Business
What is Revenue?
Revenue, it’s the one word which as business owners and leaders we will always have in our thoughts, not because we are 24/7 focused on profits and making money, but because without revenue businesses can’t operate. Revenue is like the fuel in the car that ensures it keeps running.
But, what is revenue? how do we generate it? are there different types of revenue? and how do we generate more?
The Cambridge Dictionary outlines that revenue is the
“money that a company receives, from selling goods or services”
So, it its simplest form, revenue is money that a business makes through sales.
Are there Different Types of Revenue?
In reality though, things are not always that simple, because you can have Operating Revenues and Non-Operating Revenues.
Operating Revenues generally relate to the sales of goods/products or services, essentially a business’s core activities.
Non-Operating Revenues are generated through non-core activities, for example interest earned on bank accounts, investments or rent from property.
What are Revenue Streams?
It is important that businesses have a range of revenue sources (Operating and Non-Operating), usually referred to as Revenue Streams, coming into the business. This is important for a range of reasons, one of which is the removal of the reliance on one income, which is a significant business risk. Imagine, you have all your eggs in one basket and then one day, for whatever reason, there are no more eggs arriving for you to put into your basket, what do you do?, how can your business continue to operate?
To counter this, you need to ensure you have eggs coming into your basket from different sources, so if one stops, the basket can still continue to fill, albeit perhaps a bit more slowly, and your business can continue.
Looking at the current COVID-19 situation we all find ourselves in, I have witnessed personally businesses who have multiple revenue streams have been less impacted than those who put all their eggs in the one basket.
There are a variety of different revenue streams that a business can establish which include, but limited to: Transaction, Service Provision, Programme Delivery, Recurring Sales.
Simple, clean sale of a product (doesn’t have to be a physical item, could even be a download training pack)
Generally this is a paid for time service for example, Lawyers, Consultants
The likes of fixed packages of work with agreed time-frames, outcomes etc
Covers a variety of options, for example, Rent of property, Subscription to software (e.g. Netflix model), Licencing fee for use of IP.
Should You Mix Revenue Streams?
It is important that a business utilises the right mix of revenue streams to support its business, as well as ensuring that each stream is appropriately costed to ensure not only profitability, but to ensure the stream is competitive in the market.
Having the right mix of revenue streams will this reduce the risk of relying on one source of income for your business i.e. having all your eggs in one basket. Through the proper establishment of multiple (and profitable) revenue streams you can fuel the sustainable growth of your business.
Whilst many businesses will have identified the benefit of having multiple revenue streams to support the sustainability and growth of their business, some will have shied away from this for reasons that may include;
- They don’t know how to develop, cost, resource and market a new stream
- They are lacking confidence in their own capabilities
- They’ve tried to set up a new stream before and it didn’t go to plan
- They don’t have the physical infrastructure in-house to manufacture new goods/products
What’s The Right Mix of Streams?
That’s really your decision. You know your business better than anyone, but you may also be too close to your business to see the opportunities to diversify and generate new revenue streams, or you may not have the capabilities in house to plan, develop and establish the new stream. I would really recommend you consider having a discussion with knowledgeable people on your board or external to your organisation, for example Pinnacle Professional…………Yes, shameless plug!
It is also important to ensure your revenue streams align with your business strategy. If you haven’t reviewed your strategy recently in a structured process involving key stakeholders and decision makers, then you should spend some time to do this review. The outcomes of this review will impact your revenue streams. So, before you shoot from the hip and decide to start a new stream, take a minute to pause and think.
Is it Easy to Establish a New Revenue Stream?
Deciding to establish a new revenue stream is a big decision. You need to ensure that you properly plan and resource it (people, equipment, time, processes, marketing, and ultimately money!) so as to give it the greatest chance of being successful.
Timing is also important. Perhaps the time isn’t quite right for either the business or the market, but that doesn’t mean you can’t still plan out your new offering so that when the time is right, you can hit the green light.
You also need to remember to manage your own expectations. Just because you set up a new stream doesn’t mean its going to start being profitable on day 1, it takes time and a lot of effort. Additionally, as the stream picks up pace you should continue to evolve, adapt and resource it so as to ensure it remains attractive to your customers whilst also remaining profitable for you.
Pinnacle Professional have helped a large variety of businesses of varying scale and from multiple business sectors to review and evolve their existing revenue streams and also helped to identify and establish new profitable ones.
If you would like to talk more about revenue streams, please feel free to get in touch.Contact Us