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Business Strategy Video Series: Diversity and Quality of Revenue Streams

Business strategy is more important than ever. In today’s rapidly shifting business environment, the old adage ‘Don’t put all your eggs in one basket’ rings truer than ever. Whether you are a novice entrepreneur or a seasoned business mogul, understanding the various types of revenue streams and their strategic implications is essential. An effective business model doesn’t rely on a single source of income. Instead, it diversifies to ensure sustainability, scalability, and long-term value.

Embedded within this article is a highly insightful video titled: Diversity and Quality of Revenue Streams. The video features entrepreneurs Nicola Gelormino and Dave Lorenzo. This dynamic duo delves into the intricate world of revenue streams, shedding light on their importance in crafting a foolproof business strategy, especially when planning your exit. Their engaging discussion not only covers the fundamentals but also presents the 10 key drivers of business value.

Throughout this enlightening episode, you’ll discover:

– The nuances that distinguish ad hoc, repeat, recurring, and passive revenue.
– The transformative impact of each revenue type on your business’s valuation.
– The critical importance of a diversified revenue portfolio for ensuring both business resilience and growth.
– And, the powerful leverage relationship revenue offers in formulating a successful exit strategy.

For those who prefer reading or might have missed a crucial point during the video, we’ve got you covered. Below the video, you’ll find a comprehensive transcript, ensuring you grasp every ounce of wisdom imparted by Nicola and Dave.

If you’re dedicated to fortifying your business foundation, ensuring its growth, and optimizing its value for a future exit, don’t skip this episode. And remember to watch till the end for actionable insights on enhancing your business’s value and a sneak peek into the next crucial value driver. Dive in now and fortify your strategic arenal!

If you are an entrepreneur or a CEO interested in increasing the value of your business, join us for our next Business Strategy Exit Planning Workshop.

Follow the link below for more information:

Business Strategy Exit Planning Workshop

Here is the Transcript from the Business Strategy Video:

Hey, entrepreneurs, are you ready to improve your business strategy and  increase the value of your business? There are 10 key drivers to business value, and today we’re discussing the first one to find out what it is to increase the value of your business. Now join us on this edition of the Inside BS Show. Hey, now I’m Nicki G. This is the Inside BS Show. Joining me today is my partner, Dave Lorenzo, the godfather of growth. Dave, how are you?

Dave Lorenzo:
Hey, now, Nicki G., It is always great when I get to hang out with you. Thanks for joining me today, or I’m glad to be joining you or I’m just glad to be here. So what are we talking about? We’re talking about revenue and business strategy.

Nicola Gelormino:
We are talking about increasing revenue through an improved business strategy, Dave. So Dave, revenue is revenue. Why does it matter where revenue is coming from for a business?

Dave Lorenzo:
I love this question, and in the beginning it doesn’t matter in the beginning, it just matters that there is revenue and that more importantly, there is cashflow, right? Because there’s a difference between revenue and cashflow. I don’t want to get accounting wonky with you, but you need money. But as you’re starting to think about adding value to your business, as you become more mature as an entrepreneur and as your business becomes more mature, you really need to think about the different types of revenue in your business strategy because some of the types of revenue are more valuable than others.

There are four different types of revenue in any business, and most businesses don’t really source all four. Now I know one of the types of revenue, because your business in professional services focuses really heavily on that, right? What’s the revenue type that you focus really heavily on?

Nicola Gelormino:
Well, not necessarily me, but lawyers focus heavily on ad hoc revenue,

Dave Lorenzo:
Right? Describe for the folks who are listening to the folks who are watching what ad hoc revenue is.

Nicola Gelormino:
Ad hoc revenue is looking for the next particular matter that you can handle. So using lawyers as an example, if you’re a litigation attorney, you are looking for that next litigation matter. It is a new matter, new business that you’ll be working on.

Dave Lorenzo:
You get that client, client comes in, you work really hard with that client, and the minute the matter is done, you forget the client was even there and you move on to the next client. That’s ad hoc revenue. Second type of revenue is repeat revenue, and you hate it when I do this, but revenue, revenue, that’s repeat revenue, right? You were waiting for that one. What is repeat revenue? Nicola?

Nicola Gelormino:
Repeat revenue. Dave is working with the same client on a different type of matter. So it’s something else that the client has retained you to handle that you have not already handled before.

Dave Lorenzo:
If we use a dry cleaner as an example, and you bring your shirts to the dry cleaner every week, and all of a sudden you need pants hemmed, you go to the dry cleaner and you say, Hey, Esmerelda, do you happen to do tailoring? And Esmerelda says, absolutely, we do tailoring. So then that’s a different type of work you’ve never had Esmerelda do before.

She normally does your dry cleaning, now you’re bringing her your tailoring work. That’s repeat revenue because it’s the same client, but a different type of work, and we differentiate that from the third type of revenue, and we’ll tell you why in a minute. Nicki G, what’s the third type of revenue?

Nicola Gelormino:
Third type of revenue to incorporate into your business strategy is reccurring revenue. So that is going to be the same client, same type of matter. In other words, you are performing the same type of work over and over again because that is an issue that continues to come up with a particular client who was sending it out to you,

Dave Lorenzo:
Right? Hey, Esmerelda, here are my shirts next week, Esmerelda more shirts, Esmerelda, here are my pants. Dry, clean them right over and over again. Dry cleaning, dry cleaning, dry cleaning, recurring revenue. So the difference between repeat and recurring revenue from the standpoint of attraction and business value is that acquisition intensity is higher for repeat revenue because you’ve never seen Esmeralda hem pants. You don’t know if she can do that, but you’ve seen her dry clean shirts so she can dry clean the shirts really, really well. So recurring revenue is more predictable.

The acquisition intensity is lower that I’m going to wear five of these shirts every week that I’m going to work. So you know that I’m going to come in on a Friday with five shirts from the last week. You can write it in your book. When you’re valuing a business, if the business is heavy into recurring revenue, it’s worth a lot more than if it’s heavy into ad hoc revenue or if it’s heavy into repeat revenue because it’s really, really predictable. That’s why we incorporate it into the business strategy.

The one caveat I will give you is if there’s a natural segue in your repeat revenue, you can add value in a business with that repeat revenue model.

For example, if you’re a roofer, but you also do stucco and you are a roofer in say, south Florida, and what you do is you specialize in repairing or replacing roofs due to a hurricane. You can also predict that for every three roofs you’re going to do, you’re going to have to do stucco on the outside of the house because the stucco tends to fail when there’s an extreme storm with extreme winds.

There is a little bit of potential predictability of revenue with repeat, but with recurring, there is absolute predictability. So that’s why we like repeat and recurring more than ad hoc.

Now, Nicki G, what’s the fourth type of revenue?

Nicola Gelormino:
The fourth type of revenue to think about in your business strategy, Dave, is passive revenue. Revenue where you have the lowest of acquisition intensity.

Dave Lorenzo:
And the reason passive revenue has the lowest acquisition intensity is because somebody just drops a big bag of cash on your desk, right?

Passive revenue comes from referrals or passive revenue comes when you go out and you deliver a speech and three people after the speech say, I need to work with you. I want to sign up right now. And they give you money and you start working with them. Or passive revenue comes when you write a book and people call you after you’ve written a book and they say, Hey, you wrote a book on exit strategy. I need you to come and help me exit from my business.

You did nothing to really go out and aggressively attack that market. It just came to you and it was kind of a natural thing and it was passive. There are ways to engineer passive revenue in your business.

It’s a little harder to predict, but if you have a way to generate that passive revenue, people who value your business will take into account the fact that, listen, this person does so much of this, there’s a huge opportunity for them to push down profit to the bottom line.

Take for example, Mr. Beast. I love talking about Mr. Beast. Mr. Beast is a YouTuber, Jimmy Donaldson. He owns a YouTube channel named Mr. Beast. Mr. Beast saw that he was getting a lot of eyeballs to his videos, and he thought to himself, Hey, listen, I’m going to start getting sponsors. And what happened was he didn’t think to himself, I’m going to go out and attract sponsors. The sponsors just came to him and they said, Hey, listen, if you talk about my product in the show, I’m going to give you x amount of dollars per video that you talk about my product in that.

In the beginning, that sponsorship revenue was passive revenue for him. What he decided to do was create his own product line, and the only way he goes out to market to sell that product line is by holding up his Mr. Beast bars on his show or by eating those candy bars on his show or by giving them out to the contestants on the show.

Everybody who watches his show, including my kids, they go out and buy Mr. Beast Bars and they want Mr. Beast Burgers and they want his sweatshirts and swag and stuff. So Mr. Beast, by talking about these things on his show and then selling them to people, I would consider that passive revenue. Now, if he had a sales team that went out door to door selling the Mr. Beast Candy bars that would be direct revenue or aggressive in-person revenue, that would be a typical normal driver of revenue.

But from just talking about it on Media Channel that he owns and he owns the product, I would consider that a phenomenal passive revenue stream in his business. So those are the four types of revenue in any business. Now, Nicola, why is this so important to the people who are entrepreneurs who are listening or watching the show today?

Nicola Gelormino:
This is critical for your business strategy because you are working with less intensity to get that revenue in the door. Your business is no longer dependent upon looking for that next matter. If you’re focused on ad hoc revenue, your entire business is contingent upon the next matter coming in the door. That is going to completely change if you start shifting over to passive revenue.

As you go through the scale acquisition goes down and the types of revenue that you are receiving are going to be diversified, that is going to allow your business to thrive where it will never be dependent upon a single source of revenue for it to grow and for you to be successful with it. So you want to be focusing on achieving passive revenue because that’s going to help you get the most value out of your business.

This brings us back to the discussion that we’re having today about increasing the value of your business, and you will increase that value when you’ve diversified your revenue streams and is coming in the door from a variety of different sources.

Dave Lorenzo:
That’s right, repeat recurring and passive revenue should play heavily into your business strategy. I bundle all those together into the business strategy, put ’em in one big tent, and we call that tent relationship revenue. First thing I look at when you bring me in to analyze your business is how can we increase relationship, revenue, repeat, recurring, and passive that will help you increase the value of your business right from the beginning, right from the first day that we start working together?

This is only one of the key value drivers in your business. You got to join us back here again tomorrow for Key Driver two, key Value Driver two in your business. Until then, my name is Dave Lorenzo, and she is

Nicola Gelormino:
Nicki G.

Dave Lorenzo:
And we’ll see you back here again tomorrow for another edition of the Inside BS Show.

Dave Lorenzo

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