“I don’t think we need to focus on recurring revenue,” the comment from the side of the boardroom cut through my strategic planning meeting just like a killer’s knife in a good thriller movie. While a scary thought, I let the question hang in the air so I could look at each person’s face before responding. 

In this strategic planning meeting I was facilitating, the leaders of a regional, service based company were reviewing their wins from this year so far and forecasting next year’s opportunities. One executive had offered up the idea of looking at ways to diversify revenue in an attempt to reduce risk and stabilize the company’s ebbs and flows. I knew enough about the company to know they had all their revenue coming from project work; no recurring revenue. 

While I wrote “diversify revenue” on the whiteboard, I told the group that 93% of millionaires claim they have more than 7 streams of income. Then, I turned to ask the group if they’d considered focusing on any recurring revenue streams when the abrupt objection came up. 

One of the things I love about working with high powered business executives is that they often don’t have a filter; they say what they mean and mean what they say. They don’t beat around the bush and this executive was no exception.

After I got a chance to read the room and embrace the silence, a skill my business coach has encouraged me to utilize often in these settings, I pointed to the executive who brought up the objection and asked a question I knew would start a riveting conversation. I asked, “What do you think would happen to this great organization if you never focused, not even just a little bit of your resources, on recurring revenue?” I love asking great questions as I’ve found that it causes more thought and consideration than a direct answer. 

I’ll give you his answer, if you can’t already guess, in a minute. But first, this strategic planning meeting had an outline that I’d like to share. I think there are times during strategic planning meetings that big-picture thoughts need to be considered. They could change the direction of the company. They could unleash a tremendous amount of profit. They also, if not checked, could derail the company’s focus and mission. The outline for this strategic planning meeting was simple:

1. Review revenue sources from the last few years
2. Identify which ones were profitable, sustainable, and likely to continue
3. Determine what would happen if no strategic action is taken
4. See if the leadership team would be open to allocating time and energy towards diversifying revenue
5. I get to share my 12 Principles to Diversifying Revenue

I’ve done a handful of these types of meetings and found that they’re hyper-successful when they’re done in a workshop format; handouts for leaders to complete, questions to help them think, time to develop action-items, measures for accountability, and participation from everyone present.

In my 12 Principles to Diversifying Revenue full-day-workshop worksheet, I go over each one in great detail. Here, I’ll give you the first 4. But first, you’ll need to understand the proper time to consider diversifying revenue. 

I have found the proper time to consider diversifying revenue is when:

1. You’re ready to commit to growth. 
2. You have the proper financial reporting in place. 
3. You conduct structured, leadership meetings where implementing change happens
4. You can visualize your current business operations’ processes

No business should haphazardly take on the challenge of diversifying until they have gotten to this place. If you start diversifying before you’ve done these steps, you’re setting yourself up for a chaotic endeavor. I’m not saying you can’t do it or that you’ll fail. But, without the proper business structure in place, you’re not giving yourself the best chances at winning.

Here are the first four principles to diversifying revenue:

1. Clearly identify current revenue streams – These should be denoted on your financials as specific and separate revenue line items with their respective costs included in the COGS section. Additionally, these revenue streams need to have their process, from start to finish, documented and presented visually to ensure it’s streamlined with measurements at each point. 
2. Look at the steps in the current process where you’re saying no to revenue – There might be excellent reasons for saying “no” to some revenue types; too difficult, too risky, doesn’t fit the business model, etc. That’s okay! But, there might be some way of capturing revenue from these missed opportunities. Perhaps this is through automation, an intern supporting your business, or a referral partner. 
3. Don’t lose focus on your top revenue stream – No matter how much you want to diversify your revenue, don’t forget what pays the bills. If you spend too much time, energy, and focus on generating new revenue streams, you run the risk of losing focus (and results) on your top revenue stream.
4. Separate any new revenue stream initiatives – (RSI) Separating these out, even if it’s just on a scorecard or SMART Action planning worksheet, with their respective costs clearly identified on your financials will bring clarity to your new found initiative. 

Back to the question for the executive. It didn’t take him very long to answer, and his answer was as honest as his original objection. He said, “If we don’t focus on recurring revenue, we’ll continue to have the ups and downs we’ve always had, but so far, I’d say we make out okay.” 

Quickly, to get the group back on track with the agenda and to prove a point, I asked the room to raise their hand if they wanted to have “just okay” results. No one raised their hand. “Good.” I continued, “I’m happy we’re all here to try and improve the business past ‘okay results.” I’m going to write recurring revenue on the board and we’ll unpack that in the next segment.

Their industry doesn’t, historically, have recurring revenue in a traditional sense. They provide a service, they get paid, and they look for the next opportunity. It’s a simple business model and one that they’ve found success with. The recurring revenue, for them, could come in the form of providing ongoing, recurring value – in the form of peace of mind, like insurance – which they can charge for each month. 

Is your business in need of a revenue diversity review? I’d be happy to explain my team’s process and schedule a workshop day with your leadership team. Simply fill out a form and we’ll connect.