For professional services, it’s common to have revenue peaks and valleys in which one month significantly varies from the next. For instance, maybe you bring in $60,000 in one month, but only $40,000 the following.
These fluctuations make it hard to forecast staffing, and can lead to severe cash flow crunches, if the ebbs are not well managed.
In our experiences, campaign-based clients can help normalize this variance some, and give you more predictable incoming revenue and better forecasting capabilities. However, they do not eliminate all fluctuations. There are often factors outside your agency’s control that can impact monthly revenue numbers. Examples include:
- Loss of a key campaign client due to acquisition, bankruptcy, new management or other factors unrelated to your agency’s services. (Trust us, we’ve seen it all.)
- Marketing budget changes and fluctuations on the client side, affecting how much they can dedicate to agency spend.
- Client prepayments and late payments, skewing monthly numbers high or low.
- New business feast and famine.
- Large projects that only generate revenue during a set timeframe.
Diversified Revenue = More Predictability
Diversified revenue streams are one way to better manage incoming revenue and gain more predictability. Because your eggs aren’t all in one basket, alternate revenue streams can help compensate when you have a low service month, and lessen the blow on your bottom line. As outlined in The Marketing Agency Blueprint, there are three opportunities to diversify agency revenue:
1. Education & Publishing
If your agency has built up its reach and influence, then education and publishing may be a good route to consider. Essentially, you would complement service revenue with money from books (both digital-only and traditionally-published), webinars, online courses, events and speaking engagements.
2. VAR & Affiliate Programs
Value-added reseller programs (VAR) are those in which your agency provides services around third-party products. They are a great way to boost referrals, as well as to earn money through product license fees. One example is the HubSpot VAR program, which you can learn more about in this Marketing Agency Insider guest post.
Affiliate programs are based on referred business, in which you get a cut (either a percentage or set fee) when your promotional efforts result in a new lead or customer for a third party. Affiliate programs are popular among software companies (e.g. Constant Contact, iContact and SEOMoz).
3. Software & Product Development
Software and product development offers higher profit margins and licensing fees than professional service businesses. For these reasons, products may be a viable alternate revenue stream for agencies. That said if you choose to pursue this route, make sure your business structure supports it and that you dedicate the necessary resources needed for success.
How Do You Normalize Revenue?
Share you experiences in the comments.
- What steps have you taken to make your revenue more consistent month to month?
- Do you have alternate revenue streams? What are they, and what results have you seen?
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