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Multiple Income Streams for Small Businesses to Weather any Economy

January 29, 2009

It can be tough to be a solo professional or a small business that relies on a single source of revenue like client projects.  In a difficult economy, your long term clients can cut back on their spending, leaving you short of the cashflow your business needs.

The concept of “multiple income streams”has become popular over the last decade with real estate gurus like Robert Allen, “wealth-building” gurus like Robert Kiyosaki, and professional slackers like Tim Ferris touting the benefits.

But as applied to your small business, it’s not about renting out your extra office space or the back corner of your home office.  It’s more about diversification, and ways to generate passive income (money that comes in without you working for every hour to generate it).

Diversifying Client Risk

A typical freelance consultant or virtual assistant might do work for 5 clients a month, and bill 40-50 hours per week (which is probably 50-60 spent in the business).   But for many, instead of each of the 5 clients representing 10 hours in a week, one client will take up the majority of the available hours (maybe 25 hours out of 40 or 50) in a given week.

The rule of thumb in business to reduce exposure is to try to limit your income from a single client to 20% of total revenue.  But this can be challenging with hourly work, especially with good clients – working with two or 3 good clients is less taxing than working with 5 or 10 in the same month for a solo professional.

The problem is that if one of your clients leaves, you’re now at risk for more than 20% reduced income for that month unless you can quickly find a replacement client.

Generating Passive Income

The other strategy for weathering any economy is build up additional sources of income that are more passive.  In other words they don’t rely on your active participation every day (although these do take some time and effort).  There are a couple of good ways to do this:

1. Offer your own monthly service or maintenance program

If you offer a service like web design, you might offer a monthly maintenance package  to your clients to update their site or monitor its uptime, or even do web hosting for them for a monthly fee.

If you are a virtual assistant, you could offer monthly retainer packages that don’t rely on hours, but on specific services rendered.  For example, if you do “social media”, your package could be to maintain a clients online presence (in whatever special way you have) for a set monthly fee.  You can list what types of things you’ll be doing, and even provide a list of what things you did, but get away from a strict hourly billing approach.

2. Become an affiliate of complementary products or services

Even simpler than creating your own services is to offer services from other companies that you commonly use and trust.  A web designer could be an affiliate for a web hosting company instead of offering their own hosting.  A virtual assistant could refer clients to affiliates who do specialized services like accounting, graphic design, or software development.

Affiliate products are even  simpler.  For example, our ClientSpot affiliates can refer clients or colleagues and get a recurring 20% commission on paid accounts each month for as long as the account is active.  There are many other affiliate programs available for everything from office supplies to seminars and coaching.

By using a strategy of client diversification (remember the 20% rule), and adding carefully chosen passive income sources, you can make your business resistant to downturns, sudden client cancellations, and whatever else life brings.