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Building income diversification into your business

Looking to build a more stable and sustainable business? We explore the benefits of income diversification and provide practical tips on how to implement this strategy in your business.

RightWay

May 01, 2023

One thing that all business owners are kept up at night about is the continuity of income, it's only normal to worry about this kind of thing. One of the common concerns we hear is along the lines of ‘what happens to my business if a change in the market occurs, and our offering is rendered less valuable or simply drops and demand’. In these situations, it's a good idea to start thinking about building variety into the business.

Diversifying your income sources may protect the business from those market changes. With a bit of thought, you’ll start to realise that there really are many different ways in which you can frame your offering to meet unique market demands. Diversification of business income doesn't even need to happen from your sale of services or products - many businesses derive income through investments in things like businesses or real estate. 

Don't assume that you are stuck doing just one or a few activities. If your business has some momentum in a specific industry or a particular knowledge area, there are likely many new offerings that you can explore without a major rebrand or incurring significant cost.

In this article, we're going to explore some different ways that you can build diversity of income for your business to help protect you and the team from unexpected market changes.

Adding on new services related to your area of expertise

It's quite normal to become comfortable selling a set of services or products you've been able to build a successful business off. But in order to really diversify your business and protect against market forces or competitive threats, consider what other services that you could also offer to your customers. And think about possible natural progressions from your core offering. 

A good place to start is determining what the knowledge value is within your business. What here could be transformed into a service or product line that your market already has some interest in? By moving into these new areas that meet needs outside of those you already provide, you're giving yourself more chances to acquire new business - and not rely on a few services that could experience fluctuation in demand over a business year.  

This might take some planning with the team or even with a business advisor, but it's well worth giving yourself space to think and plan around how else your business could help the market. 

Thinking about your area of expertise, and building from here, will cost a lot less and take comparatively less time than establishing completely new services that have no connection to your existing area of knowledge.

Introducing new product lines that meet your target customers’ other needs

Much like services, product lines that have been introduced off the back of what your team already knows about, and your target customers have expressed need for, is a good way to add some diversification into the business. 

In fact, by adding more product lines to your business (provided the financials make sense), you are strengthening your resilience against drops in demand for specific items. Start by thinking about what your customers also buy in the same category that you sell products in. If you sell men's hair products, are there other male grooming items that they also tend to purchase? For example, you may only sell hair products but could very easily gain access to beard grooming products as well – sometimes from the same supplier. 

Buying new products is a great way to strengthen the supplier relationship. The more you order across different product lines, the more chance there is for better deals on large orders. You may also find that as you become a bigger customer of product suppliers, the better the customer service you get. And that could be reflected in faster shipping, better product education and quicker response times around your questions.

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Commoditising advice and expertise alone

Whether you're a retail store, a tradesperson, a farmer, a barber, a web developer or any other type of business, there's likely going to be knowledge that exists within you and your team that inherently adds value to the right customer.  

It's not until you take stock of the advice you provide to customers as a byproduct of selling a service or product that you realise just how much information of real value you hold. In order to build more diversification into your business income, why not plan out all of the areas of expertise that exist in your business and determine who in the market would benefit from this information. 

Some customers may only want advice and the benefit of you and your team's brain. This in itself can either be a direct service (e.g. consulting), or it can form the basis of educational content that can be commoditised. 

Even if the knowledge that exists in your team doesn't have a direct commercial potential in it, don't underestimate the value of using knowledge as a powerful marketing and customer acquisition tool. There's a reason why many successful businesses dedicate plenty of time to create useful content on their website and social media. It can build value for your target market and also trust for later down the track when they are considering whether or not to do business with you or one of your competitors.

Making investments as a business

To make an investment as a business you will need to have reached a certain level of financial stability in order to take what is essentially a calculated risk. Investing as a business can be an excellent way of building in other income streams that have no reliance upon your own products or services. It's important to make sure that you get good professional advice around whether or not you're in a position to take this step as a business.  

Some of the ways businesses make positive investments are through things like real estate – including commercial premises that they can tenant and receive rent from. Another common investment that businesses will make is shares in other businesses. It may be that another business is complimentary to your own - and there are both long-term income potential and more immediate leveraging of shared customers. 

A business investment, much like a personal one, comes with a certain risk profile. Do your due diligence and make sure that you understand any investment, no matter how attractive, could potentially result in loss. However, it is very common for successful businesses to have interest in various other properties, businesses and stocks that help bolster financial stability. For many larger businesses, the investments made represent a significant portion of annual revenue and the long-term strategic growth plan.

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White label services

When we talk about white labelling a service or product, we are referring to the removal of your personal branding from what you offer in order to supply this through another business - who will then add their branding to it. White labelling isn't for everyone however, and if you wish to protect your IP and brand tightly without giving any other business credit for this then you will want to avoid white labelling your services. However, for business growth it's not uncommon for an owner or self-employed person to provide their products or services through a larger business in order to grow their revenue. 

White labelling can be reasonably straightforward, provided the intermediary business is comfortable with the matter in which you work. For some businesses however, they will want your product or expertise but packaged in a certain way that is aligned with their own market positioning and values. When considering whether or not to white label your services, you should think about how comfortable you are modifying your approach to fit these types of customers.

When you go into a white label service agreement with another provider to the market, it's absolutely critical that the contractual details are made very clear and that there is no debate around who owns what intellectual property. You need to make sure that your own expertise is not made exclusive to that one business. They should understand that you can also supply direct-to-market and through other businesses as a white label offering as well. 

The reason why white labelling services or products is popular is due to the fact that in one business relationship you can gain access to many customers. You don't need to do the sales job at scale yourself; this is something that's taken care of by these businesses that you're supplying through. 

Entering new industries or markets

Do you have a set industry or type of customer that represents most or all of your business? It may be time to think about other industries or demographics that could potentially benefit from your product or service.  

Often entering a new market will require some additional work around marketing and branding, but shouldn't require huge adjustments to the product. Consider who currently buys what you're offering the most - then determine where the next logical steps are as far as customer types.  

For example, if you are a florist that sells to consumers and delivers to homes, you could think about that same customer but in a corporate context. The same bunches of flowers and arrangements can be supplied but simply needs framing as corporate or business floristry. You may even find that new markets provide opportunity for bigger sale value or less friction to purchase. 

Remember entering a new industry or market for your product or service doesn't need to cost the Earth. What we usually recommend to our clients is to test the water carefully with a few customers and take learnings away before scaling. When you've qualified the market (and the financials make sense) you can then focus on marketing and your offering to this audience.

Creating offerings for specific customer types

It may be more cost-effective to tap out existing markets for your current service or product offering first. Once you've got past that stage however, you may find that there are particular needs in the market that no one caters for well. If this need is in your wheelhouse, you might decide to develop new services or products that meet this.  

It's important to qualify the market opportunity well before investing significant time or money into development. In terms of diversifying your business income, these new services or products can be excellent ways to stay resilient against changing market demands - especially if your original core offering is no longer as sought after as it once was.  

You may find that the basis of your expertise is applicable across all of these different offerings with only a percentage required that's bespoke to that customer type.

One thing to be careful of however, is to not dilute your offering to a point that your value proposition in the market becomes unclear. We've seen many times businesses that have attempted to be ‘all things to all people’ and this makes it much harder to push a coherent message into the market.

If you find that product or service diversification positions the business into quite a broad range of functions, you could consider creating sub-brands of your business, each with their own particular well-defined offering. Again, you should consider the benefits vs. drawbacks of having one vs. multiple brands and the work involved to make either approach successful. 

Get help running your business

RightWay helps New Zealand businesses across the country to optimise and improve their business performance.

Our team of business advisors (who we call Business Partners) is made up of experienced business owners and managers who’ve gone through the trials and tribulations of business growth and can now impart their wisdom to you. 

We also offer bookkeeping and payroll and of course accounting services to our clients. You don’t have to hire for these functions internally - simply chat to us about your needs and we can help build a plan that works for you.

 

 

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