De-risking revenue: How exposed is your business?
Imagine 60% of your sales coming from one star product or a single major client. It's great while demand is strong… But what happens if a competitor undercuts that product, or that client's budget dries up? Relying heavily on one revenue source ("all the eggs in one basket," as the saying goes) can leave your business vulnerable when market conditions change.
There's even a term for this: revenue concentration, meaning a big chunk of income depends on just one or a few sources. When Slack lost its largest customer in 2018 (only about 3% of its revenue), its stock still dropped 8% in a day.
The danger of a single revenue stream
Focusing on a single product or market can feel efficient, but it introduces big risks. Demand can shift overnight due to economic swings, new tech trends, or even policy changes. If your entire business leans on one type of offering, you're highly exposed to those shifts. For example, a retail company that generates most of its sales from one bestselling item might see revenue plummet if consumer tastes change or a supply issue occurs. A software firm serving one industry could struggle if that industry faces new regulations.
Without alternate income streams to balance things out, even a temporary downturn in that one area can cause cash flow headaches and stalled growth. In short, concentration risk makes your business less resilient. Diversifying where your money comes from (new products, markets, or customers) is key to building a buffer against these unpredictable changes.
Strategic diversification
Spreading your revenue across multiple "stacks" (products, markets, channels) creates a more stable foundation than one big stack. Diversification protects your business by ensuring no single point of failure can topple your cash flow.
It's important to note that reducing concentration risk isn't about frantically chasing every opportunity that comes along. In business terms, this means strategic diversification: expanding in adjacent or complementary areas where you can leverage your strengths, instead of leaping into something completely unrelated.
For example, if you run a SaaS company, you might identify a feature your customers often request and consider turning it into a small add-on product, rather than suddenly entering a whole new industry. The goal is to balance your portfolio of revenue sources without losing focus on what you do best.
Testing the waters with small digital experiments
One practical way to diversify safely is through small-scale experiments. Before committing significant time or money to a major new initiative, test it out on a limited basis.
Today, running these experiments is easier and more affordable than ever. You can float a new idea to a subset of customers, launch a quick landing page to gauge interest in a service, or A/B test a different pricing model, all without derailing your core operations. The beauty of digital experiments is that they give you data and feedback fast, so you can decide what's worth pursuing further.
What kind of revenue experiments might make sense? Here are a few ideas that many business owners:
Introduce a new pricing tier: For instance, add a premium plan with extra features, or a budget-friendly tier to attract a wider customer base.
Offer an add-on product or service: Think about complementary offerings that align with your main product. If you run a retail store known for one product category, what related items could you offer? Add-ons can generate extra revenue from existing customers and deepen customer loyalty.
Experiment with a new channel or partnership: If you've relied on one sales channel (say, direct sales or a single e-commerce platform), try a new one in a small way. This could mean partnering with a reseller or affiliate, opening a pop-up store online, or joining a marketplace. A new distribution channel can tap audiences you wouldn't reach otherwise.
Target an adjacent market: Consider a market extension – a new customer demographic or geographic region that's related to your current market. For instance, a software company serving hairdresser salons might try marketing a version of its product to beauty parlors or barbers.
Each of these experiments is relatively low commitment. They're like dipping a toe in new waters rather than diving in headfirst. By running a controlled experiment, you gather evidence on whether a new revenue stream is viable. If it flops, you've limited the downside (and probably learned something useful). If it shows promise, you can invest more with confidence.
Conclusion: How exposed is your business?
Diversifying your revenue streams is ultimately about resilience. Business owners who take the time to cultivate a few extra income sources often find their companies can roll with the punches of market changes much better than those who don't.
The key is to start before a crisis hits, thoughtfully testing the waters.
So, ask yourself: What percentage of your revenue depends on a single product, customer, channel, or market? If losing that one source would materially impact your cash flow, it may be time to start exploring some controlled alternatives.
The good news is you don't have to go it alone. This is exactly what we love helping businesses with at Appify Digital: guiding you through small digital experiments to unlock new revenue streams without derailing your core business.
After all, building a business is hard work; protecting it with a more balanced revenue mix just makes good sense. Ready to see what opportunities might be adjacent to your core business? It might be time to find out, and we're here to help you test the waters.
Appify Digital is a leading web and mobile app development company in Dublin, serving clients across Ireland and the UK. We specialize in creating innovative, AI-powered solutions that deliver exceptional user experiences and drive business growth.