Does Your Business Have the Right Revenue Streams?
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How do you make money?
When you ask yourself this question, does the answer come easily? It’s something entrepreneurs often take for granted—but shouldn’t.
Ways We Earn: One of the 6 Ws
In GROWTH, our business operating system, there’s a section called the “6 Ws” that define every company. The “Ways We Earn” is one of those 6 Ws.
Ways We Earn is more specific than what you do for a living (e.g., we are a consulting company). It asks you to identify the discrete revenue streams in your business—and to examine and optimize those revenue streams for greater success.
Here are four simple steps to getting clear on the ways YOU earn:
Gaining Clarity On Your Revenue Model
Step 1. Examine your revenue streams.
Make a list of all the different ways that you make money. I’ll use my two companies as an example.
—CE Painting. Extremely simple business model. CE Painting has exactly one revenue stream: we paint stuff.
—CCG. Totally different business model. To date, we offer GROWTH consulting, executive coaching, finance services, fractional COO services, HR services, and DiSC assessments. We also earn through referral agreements with our partners.
I refer to each revenue stream as a different “bucket” of opportunity. The next steps identify how much opportunity may be available in each bucket.
Step 2. Evaluate profitability by bucket.
Determine how profitable each bucket of revenue is for your organization. For this review, look at total profit dollars as well as profitability percentage.
Example: if one of your buckets is 70% profitable but only brings in $10,000 per year, that’s very different from a bucket that is 45% profitable but brings in $1 million.
Not every offer requires an equal amount of your time and effort. Take a critical eye to each of your revenue buckets and evaluate how “distractible” each offer is.
While your profitability analysis will inform this step, it’s not the only consideration. You and your team know from lived experience which offers take the most out of you.
Are there any buckets that leave you feeling drained?
Which offers are central to your core business, and which ones are unrelated one-offs?
If a one-off, is it a cash cow or a drag on your resources?
There’s not a simple formula for evaluating distractibility, but a long hard look at your revenue in the context of your time and effort (which don’t always show up in profit margins) can be extremely useful.
Step 4. Keep, Kill, or Combine
As a rule of thumb, you should spend your time in the areas that make you the most money—assuming they clear the bar for distractibility as well.
For each bucket, determine whether you will keep it as an offering, kill it through elimination, or combine it by consolidating or folding it into another offer.
Younger companies typically end up doing more killing and combining in this step. Early growth is often a result of saying “yes” to any quasi-related opportunity that comes your way. So pruning revenue streams allows you to focus on fewer activities and leverage them to be as profitable as possible.
Maturing companies, on the other hand, usually have their core offerings down pat. Instead, they may want to intentionally add in new revenue buckets to expand their offerings. Leverage means different things at different stages of growth.
The Ways We Earn is one of my favorite exercises in the GROWTH toolbox. “How do we make money?” is such a simple question, but companies don’t ask it often enough. Take the time to evaluate your offers and their effectiveness, and you’ll clear the way for faster, more intentional growth inside your business.