There is nothing quite so dangerous as having all of your income dependent on one revenue source. Every day is spent balanced on the knife’s edge, one unfortunate misunderstanding away from being out of business.
At different times in my career I’ve encountered situations where a single revenue source was responsible for 85% or more of the company’s income. In each circumstance, the need for corrective action was obvious, important, and urgent.
In one case the company operated in the business-to-business arena with only a handful of potential customers (about 24). We shifted a set of resources from the major, highly profitable account and moved them to a couple of smaller, less profitable accounts. Though the company’s bottom line took a hit in the short term, we established relationships with those customers and began to build trust. Over the next several years the revenue and profitability grew with those customers, as the initial seeds we planted bloomed. With increased marketing focus, we also increased the potential customer-base from 24 customers to around 100. All of this work paid off when the company that had initially been the major account filed for bankruptcy protection five years after we began the diversification process.
On another occasion my wife and I took over daily operations for a consumer-facing business with 100% of its revenue coming from online sales. We started looking for a retail location immediately (though it took us almost 18 months to find the right site), to expand the successful online brand to bricks and mortar. After opening the physical location, we broadened the merchandise selection and launched a magazine (both print and online) which expanded the brand’s advertising and partnership potential. Lastly, we experimented with event promotion as well. By the time we sold the business, numerous revenue streams were in place, all of which complimented each other.
Authors without books
Earlier this year, several authors experienced first-hand how a business with only one revenue source can evaporate overnight when Amazon removed the author’s books from the Kindle Direct Publishing Select platform.
“It was the worst week of my life,” writer Jason Cipriano told Yahoo Finance as he recalled getting the notice that his books had been removed and his Kindle Direct Publishing (KDP) account suspended. He received the news on the first day of his family’s vacation out of the country.
With close to 100% of his revenue coming from Kindle download royalties, Cipriano’s income disappeared with the click of a mouse.
“We spent the entire vacation in the hotel worried if I was ever going to make another penny again and worrying about how I was going to pay off all of the expenses for everybody and if we could even afford to eat dinner that night.”
According to Cipriano, Amazon removed his books (along with those of other authors) due to claims of manipulating KDP services, which include Amazon’s all-you-can-read $9.99 Kindle Unlimited, a claim which Cipriano denies.
It may not be intuitive to expand your revenue streams when everything seems to be working and you’re making “easy money,” but that’s exactly the best time to do it. You’re reaching customers and enjoying success. Leverage that success and attention to other platforms, channels, or whatever applies to your business. It will likely cost you some profitability to do it, but better to absorb those costs while you’re making money than to wait until you have no other choice.
While this decision from Amazon affected a handful of authors, a similar Amazon decision affected thousands of bloggers when the online behemoth overhauled affiliate commissions in 2017. Many who counted on Amazon commissions for their livelihood had their incomes cut in half (or worse), and the ones who survived the change took months to build their income back up to the level it was before the adjustment was made.
Monetization faucet turned off
Anyone relying on YouTube ad revenue sharing for the bulk of their income could find themselves in the same situation as the effected KDP authors and Amazon Affiliates.
The biggest YouTube stars have established direct relationships with their advertisers that protects them from an overnight blow like the one the video site delivered to small producers in early 2018. This change completely removed the monetization option for any channel with less than a thousand subscribers and less than four thousand hours of streamed videos over a one-year period. For those uploaders who were slightly above the cutoff and unaffected, there’s nothing stopping YouTube from making the same kind of decision tomorrow and cutting off anyone with less than ten-thousand subscribers.
Direct relationships with advertisers, using a social media channel to drive sales outside of the channel, sponsorships, converting followers to email subscribers, and other multi-channel strategies will ensure that no single decision by a third-party can eliminate your online business with a single click.
For the rest of this week, we’ll continue our series on the ways in which the number one is bad for business, but, by a wide margin, this “one” is the worst.