The Cornerstone of Any Online Business is How Diversified it is
Every Savvy Digital Entrepreneur Understands the Importance of Diversifying Income Streams
When entrepreneurs are looking for ways to grow their online business, they will usually consider paid advertising platforms as well as diversifying their traffic and income sources.
Taking a step back from daily operations, established digital business owners are constantly looking for new approaches to diversifying their income and reducing the risk of relying too heavily on one single source. When entrepreneurs are starting out, this is something that is often overlooked as a means of increasing net profits and maintaining low margins.
Compared to traditional banking investments like index funds, the active investing of growing an online business means that you have more control over how much or how little your effort will pay off in the end. For those looking to ultimately exit their digital venture for huge capital gains, the more diversified your business is in terms of income and traffic, the more you will be able to demand from potential investors.
When you diversify your whole business, you build a sturdy foundation for your asset that avoids allowing a single income source to feed your entire profit stream. But before we discuss how you should diversify your business model to eventually exit for a handsome amount, let’s cover which business channels you should choose first.
Which Door Do You Pick?
When looking to purchase your online business, you will probably have spent a lot of time researching the niche, monetization, and market you want to target. Because you’ve already done most of the hard work while getting started, you can experiment with new monetization routes almost immediately once you begin scaling your business. Try not to be overwhelmed by which networks or types of products will fit your content; just start testing some things out.
For reasons unknown, however, most online business owners miss the opportunity to monetize their email list or to perform a/b split testing on the calls to action found on their site. This is to be expected when you consider how wrapped up entrepreneurs can get with other opportunities when things start working, but adding new monetization opportunities is something that can increase your net profits and thus increase your asking price when you decide to exit.
Diversification Means Rewards are Equal
No matter which door you choose, adding additional income sources to your model spreads your business worth. When you focus on building only one form of monetization, as many entrepreneurs often do, you remain neutral in the eyes of potential buyers who are likely to be cautious about the inherent risk of having only one stream of income.
A business with more than one stream is far more stable and unlikely to fail should something unexpected happen with, for example, a Google algorithm update. Diversifying your revenue sources will make your business more attractive to potential buyers because you are spreading the risk across multiple channels and platforms.
More Revenue Channels Add an Extra Buffer
By adding income sources to your business, you will also establish the better long-term investment that many buyers are looking for. Would you place a $100 bet on something with 50/50 odds or spread your budget across multiple $20 bets with better odds?
Whether you are new to the world of online business or a seasoned veteran looking to make a seven-figure exit for the third time, digital concerns are often subject to unexpected change. Based on the known risk factors of, for example, Google algorithm updates and Amazon-affiliate commission changes, spreading the risk is now more important than ever.
Running an online business is not a gamble for those who understand the importance of diversifying every aspect of their business.
Countless Options to Diversify Your Online Business
There are a range of options available to you for diversifying the income streams of your online business, and testing any new techniques will be important to make sure your efforts are not wasted. If you use a template business model like Amazon FBA, you should still test other revenue streams outside of the platform but not abandon Amazon completely.
Even if you own a brick and mortar business, you can diversify your revenue by incorporating online business into the equation. For those with established digital businesses, adding affiliate program links to products in your physical store can essentially double-dip your net profits to acquire that customer.
Not All Doors Lead to New Opportunities
There is an assortment of ways to diversify your traffic and income, but some of these discoveries may end up causing more harm than good. Taking time away from your business to invest money, time, and energy in a new channel with diminishing returns is not something that anyone wants to experience first-hand, so be sure to perform your own due diligence on any monetization innovations you are considering.
With income streams constantly improving, make sure that something that looks good on paper will pay back the time you have spent on it dollar-for-dollar. An online business owner who spends too much time building a Shopify storefront might have secured more income than those few additional sales if they had instead focused on launching a new product. So, make sure that you check the weekly returns of any new monetization in your business model as the worst thing you could do when attempting to diversify income sources is to dump money into something that will never pay you back.
Test, Measure, Change, Repeat
If you currently have a business and are only generating one source of income, you should definitely consider branching out: Experiment with different avenues, measure the performance, and monitor how much time you spend trying to achieve a positive outcome. If you find something that is relatively easy to implement with SOPs, and has a decent ROI, start including it more often in your business model.
One example would be to develop an email list for your online content business. Building such a contact list is one of the most undervalued and misunderstood channels that can offer huge return potential when monetized correctly. If you build a loyal subscriber base that is eager to receive your weekly newsletters, you can use it to your advantage to monetize content in the future having already established this solid relationship.
Get Your Core Model Right
Before you set out to add every known monetization under the sun, you should first make sure that your core monetization is at peak performance. A business with existing well-oiled operations will be in a better position to branch out to incorporate other income sources when the time comes.
Establishing market share and building a name is key to gaining trust and positive reviews for your products or services. Once you have gained these attributes and are ready to expand your business to other forms of monetization, you should start testing new avenues and be sure to measure and track everything you do to determine the reward.
If you have already been growing your income sources and are now looking to discover how much you can gain from a profitable exit, use our valuation tool to find out the value of your business today. When you have an idea of how much your business is worth, you can tailor your exit goals to incorporate additional income sources to get you to your business goals sooner.
