Whether you are a self-employed entrepreneur, a small business, or guiding a large corporation, one of your goals should be to create additional revenue streams for your business.
With multiple revenue streams, you can better weather disruptions in your core business by diversifying the sources of revenue.
We’ll discuss how entrepreneurs, small businesses and large companies can diversify their income base, add passive income to the mix and the importance of generating additional revenue streams.
Creating Additional Revenue Streams for Your Business
If you’re trying to learn how to create multiple revenue streams for your business, a good place to start is learning how others did it.
How many income streams should you have? An Internal Revenue Service (IRS) study of 6,000 wealthy individuals showed the average millionaire has 7 types of income streams:
- Investment income: Stocks generating dividends
- Earned income: Salary from their primary occupation
- Rental income: Real estate rental properties
- Royalty income: Selling rights for inventions, content, or creative ventures
- Capital gains: Capital gains from investments or the sale of appreciated assets
- Profits: Net income for business ownership
- Interest income: Interest from savings, bonds, investments, and other lending activities
Many of these channels are considered passive income.
So, What Is Passive Income?
Passive income is money you earn from rental properties, business investments or other enterprises without having to be actively involved. You create passive income by investing in certain things or starting up a business that requires little effort to maintain.
Although both capital gains and passive income are taxed at capital gains rates, the IRS does differentiate between the 2. According to the IRS definition, passive income is when you make money from a trade of business activity where you are “not materially involved.” This means claiming passive income on your tax return requires you to work less than 500 hours annually.
You can see the full set of rules in IRS 2020 publication 925.
Besides the tax ramifications, passive income is a great investment strategy to increase revenue streams. The right investments create new revenue without active participation.
Examples would be:
- Rental income
- Some limited partnerships
- Stocks, bonds, securities, and bank deposits
One strategy many individuals use is to buy property and rent it out. They use the rental income, taxed at a lower rate to pay the monthly loan on the property. As equity accumulates over time, they can then sell the property at a profit. It can be lucrative. However, it can be risky if the property depreciates too much or it is unoccupied for stretches.
Additional Revenue Stream Ideas
As with individuals, businesses need to diversity and create additional revenue streams to continue to grow. Here are some additional revenue stream ideas for businesses to broaden their revenue channels.
There’s no right or wrong way to start creating additional revenue streams for businesses. The most common is to create new products or services in addition to what you already offer or to increase your customer base.
1. New Products or Services
If you can add complementary products or services to your current line, you have the opportunity to market them to your existing customers which you already have a relationship.
For example, if you are a tech company that provides information technology (IT) consulting, you might consider adding managed IT services or managed security services to your product line. These can sometimes create new revenue streams quickly with minimal risk as you upsell existing customers.
Many businesses had to adapt during the pandemic and pivot to new services to survive. When customers would no longer sit inside restaurants, they changed the service model. Some added outdoor eating spaces. Others provide curbside pickup. Yet others diversified their business model and started selling fresh vegetables, restaurant-quality meats, and ready-to-eat meal packets.
2. Increase Your Customer Base
If you can grow your customer base, you’ll likely generate new revenue. Even without creating new products, you can expand your marketing efforts to generate new leads and convert new customers.
Selling online allows you to create new revenue streams from outside your local territory. This broadens the pool of potential customers significantly. You can incorporate ecommerce into your current website or take advantage of online platforms such as Amazon.com, eBay, Walmart, Etsy, Alibaba, Google Express and others.
In 2019, about 13.6% of sales came from online purchasing, according to eMarketer. In 2021, that number is expected to rise 19.5% to $4.891 trillion worldwide. That represents more than a 45% increase in 2 years.
4. Affiliate Networks
Affiliate networks can be a good way to create additional revenue without extra work. With an affiliate network, you can earn a commission for selling other company’s products or create your own network and let others sell for you. Regardless of what product or service you sell, there are likely related products that you don’t offer. By tapping into affiliate networks, you can earn commission based on referral fees for selling other company’s products or services.
Affiliate marketing is a multibillion-dollar industry. You can offer complementary products yourself or create your own affiliate marketing program.
5. Partner Up
Rather than create an affiliate marketing program, you may be able to partner with other businesses and help each other out.
Let’s say you’re selling premium wines and you have a grocer friend that offers a diverse line of cheeses. Can you create a package that includes a pairing of wines and cheeses that go together that both of you can sell?
If you’re a radio station owner, can you partner with an event planner to create a one-stop solution for the planning and promotion of events?
6. Bundle Building
You may already have the pieces in place to create new revenue opportunities. Take a look at your product lines or services to see if they are compatible items that can be bundled together.
Insurance companies do this exceptionally well. When you get insurance for your home, car and life insurance through the same provider, they offer discounts. That works for the consumer, but it also expands the lifetime customer value for the insurer and helps decrease turnover.
In your business, you may be able to package together products to grow your income and customer retention.
7. Memberships, Subscriptions and Service Plans
In the software-as-a-service (SaaS) world, it’s all about monthly recurring revenue. Getting people to both sign-up and continue to pay for the service is the key to profitability. It can work for other businesses as well.
Can you sign people up for a recurring solution? If you’re in the HVAC industry, you might offer annual service plans that include spring and winter tune-ups and safety checks. If you’re in the salon business, you might offer monthly haircuts with free touch-ups in between. This provides recurring revenue and helps with client retention.
Many SaaS providers start as freemium products by offering free trials or limited toolsets to entice people to try it out before investing. Can your business do the same?
8. Diversify Your Investments
Diversification can create new revenue streams. It can also help you reduce the amount of risk you are exposed to in your business. Diversification can apply to your investment portfolios, such as cash, stocks, bonds and savings. Moreover, it can apply to other companies, businesses or properties that you inquire or invest in.
If you thought blogging was a fad, it isn’t. There are some 31.7 million bloggers in the U.S., according to Statista. While many are one-person operations, others are tied to businesses. If you can grow a following, there’s money to be made.
Advertising and affiliate networks can add to your income, although it takes a fair amount of traffic and sales to do so.
Blogging also provides fresh content to your company’s website, which search engines like to see. A solid strategy to provide fresh, relevant, and valuable content can help your company rank better in search and attract new customers.
Even if you don’t generate revenue directly from your blogging activities, it can help your overall business build new revenue streams.
10. Expert Advice and Training
If you have deep experience in your industry, you can create valuable content for your website or blog to attract visitors. You also may be able to monetize it by turning it into an online training course.
There are plenty of inexpensive resources online that can help you create multimedia training classes that include quizzes and certifications.
11. Private-Label Products
Did you know that half of all major sellers on Amazon are selling private-label products?
It can be as simple as finding generic products, putting your logo and brand name on them and offering them for sale. On Amazon, it helps you create a separate product listing and can separate you from others selling the same commodity products.
Private label products grew significantly during the pandemic. A study by Oracle reported that 86% of shoppers said they bought or explored new store brands or private label alternatives. The practice is successful enough that Amazon has more than 22,000 private-label products under more than 100 different brands.
12. White-Label Services
Do you have services or solutions that are unique to your business or service area that you can offer to other businesses to resell?
If you are selling digital marketing services in your community, can you extend your revenue channels by allowing other media companies to sell your products under their brand, but contract with you to do the work for them?
This works especially well if there’s a product or service another company’s customers need, but the company is unable to provide it and be beneficial to both parties.
Don’t Forget Your Current Customers
While adding multiple revenue streams can help grow your business, don’t do it at the expense of your current customers. For most businesses, the biggest expense you will have is the cost of customer acquisition. From marketing to advertising to sales to service, acquiring customers can be expensive.
Once you’ve got them to buy once, it’s always going to be less expensive to get them to buy again than finding new customers. A 2014 study in the Harvard Business Review said the cost of acquiring a new customer is anywhere from 5 to 25 times more expensive than keeping your current ones. In 2021, there’s even more competition and more marketing messages vying for attention.
Repeat customers tend to spend more often and spend larger amounts than new customers. Developing loyal customers can provide long-term revenue.
The Benefits of Creating New Revenue Channels
Among other things, adding new revenue streams can help you:
- Provide expanded offerings
- Create new business categories
- Achieve additional revenue growth
- Diversify your revenue channels to reduce risk
- Improve financial stability
- Grow passive income
By finding and creating additional revenue streams, you can help grow your individual or corporate portfolio. It can make your business more valuable and improve marketability if you do want to sell or take on additional investors in the future.