The term is thrown around by elite entrepreneurial influencers on platforms like LinkedIn. What is an income stream, and why would someone say I need more than one?
An income stream (sometimes called a revenue stream) is a company's money source. It's the product or service that a company offers to its end clients. Income streams are how businesses make money.
For example, a design agency may have several ways of making money: branding and identity design, website design, social media design, image leasing agreements, etc.
That seems like a good thing, right? The more ways of making money you have, the more money your business can make.
In reality, it's far more complicated to introduce revenue streams into your company than one might think. While additional streams are excellent for bringing in more cash, offering additional services can divide your resources and lower the quality of your work.
You Don't Need to Start with Multiple Streams
Entrepreneurs are visionaries.
You think of incredible ideas and ways of making money. You're constantly dreaming of the next product you can build! But it takes a significant amount of time for any idea to come to fruition. It takes a long time to actually build a successful business.
This visionary mindset allows you to generate some incredible ideas, but it's most commonly why many entrepreneurs have trouble with execution.
When starting a new business, it can feel tempting to service every client that comes your way, regardless of if they're a good fit or not.
Picture this: you're running a bookkeeping practice, and someone comes along asking if you can also handle their tax filing at the end of the year. You've never done it before, but the client doesn't care, and they're offering you money!
If you start offering this new service, it could become a valuable new income stream for your business!
Many small business owners find themselves taking on projects that are not a fit precisely like this. It's easy for us to rationalize the decision because we need the money, think we can figure out the work, or have a hard time saying no.
Saying no can feel counterintuitive to the visionary inside you. Wouldn't your time be better spent trying to make as much money by selling as many different services as possible?
Focusing on one product or service when you first start your business means that you're able to provide the highest quality service possible, encouraging clients to refer you to other people. You retain the ability to focus all of your energy and resources instead of spreading yourself too thin.
When you become familiar with the problem you're solving for other people, you become more adept at providing an excellent solution. You'll get more efficient at solving this problem, which means you can grow your business.
Expand When You're Ready
As your business evolves and you have more capacity, you can introduce other products and services to sell. This is called expansion revenue.
Expansion revenue is income generated by offering additional products or services to existing clients. It's a key component to growing your business fast, and can be an efficient way to create additional revenue streams.
When you've focused long enough on solving a single problem and center your business around providing that solution in the most efficient manner possible, it becomes much easier to identify adjacent problems and create relevant solutions.
In our bookkeeping practice example, you may be able to begin offering tax preparation services, create affiliate partnerships with other financial service providers, or offer outsourced CFO services.
Identifying your capacity is the most critical component to understand when planning to offer additional services to generate another income stream. You may need to hire additional staff to serve the customers you're offering this new product to, introduce new systems and processes, and create a way to collect customer feedback.
The bottom line is that a new product or service should not significantly impact your existing customers' experience; otherwise, your reputation may be on the line.
When done correctly, expansion revenue can be an incredible driver for growing your business. Still, creating a new income stream requires another substantially focused effort while simultaneously caring for and working with your existing customers.
It's like starting a new business inside of your existing business!