The Path to Building a Winning Business
As you start your small business or entrepreneurial adventure, you will have one or two customers to start with. Very few will be lucky enough to go viral and end up with a diverse revenue stream right off the bat. It’s a process, but it’s one that you need to pursue, or have your sales team pursue. There are a couple of different ways to diversify your revenue, and both are great options:
1. Multiple product/service offerings
2. Multiple customers
Both are pretty straightforward but worth looking at in a little more detail. Statistics show that on average, repeat customers spend 67% more than new customers. This highlights the importance of retaining customers for increased revenue.
Multiple Product/Service Offerings
Again, pretty straightforward. Instead of just offering Widget A, you want to offer Widgets A & B, maybe Service 1 & 2. It’s best to start out with some complementary products and services because you will be the primary provider of all. The advantage of this is that as there are delays in shipping for one product, the other can complement and continue to provide you revenue. Statistics show that small businesses that diversify their product offerings are 45% more likely to report increased revenue over the previous year.
As your customers use your product, they realize they need a service or another product. Think pen holders for your planners or cases for your smartphone. A great way to determine these complementary products and services is to engage with your customers and ask them. Use social media, email, phone calls, etc. As customers provide some thoughts, listen and take notes. When you see a trend in requests, spend some time reflecting. Is that an additional product or service you can offer? Or is that something you can team up with another small business or entrepreneur on? This can lead to additional markets or market segments, as well as recurring revenue.
Multiple Customers
This probably affects larger products or services that are sold to larger companies, like software packages or larger machines. These items are also more likely to be business-to-business (B2B) transactions. In these transactions, it makes sense to have multiple customers to develop a diverse revenue line. These larger transactions are going to take more time and effort for each transaction. They will be larger dollar amounts, but that also means there can be more competition. Plan to lose accounts. Plan to have service or delivery issues that cause some delays in your revenue stream.
Statistics show that acquiring a new customer can cost five times more than retaining an existing customer. Additionally, increasing customer retention rates by 5% increases profits by 25% to 95%. How do you avoid losing a sale killing your small business? Have several projects in the works. Work toward having no customer be larger than 15%-20% of your total revenue. This will take time, and this number will fluctuate from month to month. But as you build the diverse customer base, you will have more freedom. You will be at peace more, knowing that one lost sale will not sink your ship. You will be able to fire those bad customers and hire more great sales and operations folks because you have a diverse revenue stream that gives you confidence that you can support the headcount.
Statistics also show that 86% of buyers are willing to pay more for a great customer experience. Providing excellent service and maintaining good customer relations can lead to higher customer retention. Additionally, 92% of consumers trust referrals from people they know. Encouraging satisfied customers to refer others can significantly enhance marketing efforts and attract new business at a lower cost.
So Now What?
Do you know your current product and customer revenue mix? If not, spend some time to dig in and understand it. Also, review customer feedback. There may be some low-hanging fruit for your next diversification step.
So Remember:
1. Winning means customers coming back to order again or recommending you to friends and family.
2. Be grateful to your customer; it will help both of you.
3. Playing forever means customers come back to you again and again.
Action Step:
What are you doing today to ensure that customers ask you to play again?
Consider Reading As Well
1. “The Value of Keeping the Right Customers” - Harvard Business Review (HBR)
2. “Why Customer Retention Is King: The Costs of Customer Churn” - Forbes
3. “5 Ways to Increase Customer Retention for Your Small Business” - Entrepreneur Magazine
4. “How to Retain Your Customers” - Inc. Magazine
5. “The Importance of Customer Retention in a Competitive Marketplace” - Business Insider