Multiple Revenue Streams and Growing Annuities

Most creative businesses only have one source of income.  Designers, photographers, stationers, florists and planners get commissioned to do a project and, when the project is over, have to find another one to generate revenue.  Throw into the mix some seasonality and you have one tough business.  Quite literally, you do not know what tomorrow will bring.

Today’s economic environment has made it painfully clear how risky it is to rely on one source of revenue.  Yet, given the choice, most creative business owners would STILL rather invest all of their marketing, PR and psychic dollars to chase after the next client than develop a new revenue source.

The power of another revenue stream is exponential.  For example, take a caterer starting to sell cooking classes as part of her service to her clients.  If she owns/rents her kitchen, the more it is used, the cheaper it is for her.  If she has salaried staff, the more she uses them, the cheaper they are.  The more food she buys, the better pricing she will get.  If she turns the service into more than just a one-off event, she has extended her client beyond the event.  If her catering business slows, the cooking classes might take up the slack and vice-versa.  Oh, and don’t forget about the power of cross-marketing. 

My only caveat to adding another revenue stream is that it HAS to be directly related to the core of your creative business.  No photographers starting a travel agency please.

If you are able (or willing) to create another revenue stream for your creative business, why not reach for the holy grail — a consistent and growing annuity rather than a one-off business? 

Take the caterer starting cooking classes again.  She could offer one class as part of her catering service or she could offer annual memberships.  Let’s say the membership included four classes per year and was paid monthly via automatic deduction from a credit card.  Different rates for different memberships.  Yes, doing one-offs is easier – the caterer gets paid a bigger number, does the class and she is done.  However, she is in the same position as she is with her core catering business: constantly chasing after new clients.

A membership program offers her the chance at a growing annuity.  Why?  Presuming everyone is happy with the service and wants to continue their membership, then each year will build on the next in terms of revenue until the existing annuity stream will be larger than that from new business.  For instance, if the membership is $100 a year, everyone stays and there are 25 new members each year, then in year one – the caterer would get $2,500 from new clients; in year two, $2,500 from new clients and $2,500 from existing clients; and in year three $2,500 from new clients and $5,000 from existing clients.

If Aesop were to write The Tortoise And The Hare for creative businesses, a growing annuity would be the tortoise, seasonal one-off large projects the hare.  We all know how that story ends…