Growth By Diversification Basics

Diversifying your products and services is a great way to build a more robust business model for a commercial pavement sweeping company. Adding new revenue channels comes with advantages and disadvantages, like just about anything else you do to grow your business. Of course, those must be carefully weighed before investing in resources to support additional product or service channels. There are some very popular and inexpensive options for adding new service lines to pavement sweeping businesses. Here, we’ll offer some general considerations.

Adding Product and Service Channels

Many pavement sweeping companies offer additional services for their customers. For example, trying portering, which has been called a “cash cow” by at least one highly successful sweeping company featured in the NAS Spotlight. Others may include adding trash bins and/or ash urn rentals, with or without routine servicing. Others offer gum removal, power washing, signage maintenance, fencing repairs, asphalt repairs, roll-off rentals, portable storage container rentals, interior clean-out services, even painting services, and other conveniences for customers.

Types of Business Diversification

These kinds of diversification are normally managed by one or more of these methods:

• Horizontal Diversification: The business adds one or more products or services to help existing customers add a sweeper for construction sites. For example, you may decide to invest in a construction site sweeper truck, or indoor parking garage sweeping equipment. This expansion of the service model may also attract new markets looking for more comprehensive offerings.

• Vertical Diversification: The business acquires a segment of the value chain, possibly either by distributing or even contracting to manufacture one or more products or services it offers. For example, you may have an innovative route scheduling software system your team has designed. At least one sweeping company in the midwest sells its route management software to other sweeping companies.

• Geographical Diversification: Launching services into new territories offers growth opportunities coast to coast. For example, you may add a sales rep with the talent to establish your business as a go-to provider for services to professional sports events and other major venues across your region. Or, you may finally decide to start tackling municipal, state, and/or federal contract bids. With adequate research and financial resources, you can tap into a vast abundance of new profit centers.

Cost/Benefit Ratio of Product and Service Diversification

For offering and subcontracting some of these services and collecting profits for contracting out the work. It would cover considerations of offering one or two additional services in-house or developing a full one-stop shop for customers for all exterior or even interior cleaning and maintenance.

It would end with a brief discussion of the amount of admin work, insurance, and field costs for the amount of revenue and business growth to be gained from adding these service channels, and perspectives on the value of such adds, vs the long-term cost of not diversifying, especially in limited markets or in companies with budget constraints that do not support investment in additional sweepers and crew expansions, etc.

Diversification Benefits

• Income Stabilization: When a seasonal income channel naturally declines, non-seasonal revenue lines can help offset the periodic revenue reductions.
• Added Synergies: Adding new revenue generators can help promote your primary offerings and vice versa, to capitalize on synergies that help grow market share.
• Financial Hedge: Having more than one income source can help protect profitability if one or more other revenue streams run dry because of changing market conditions or other unforeseeable external impacts.
• Growth Source: Strengthening a business’s cash flow by adding new products and/or services can provide the financial foundation for a company to launch more aggressive growth plans.
Diversification Costs

There are, naturally, challenges, costs, and risks in adding even the most common and least expensive revenue streams to any existing business model:

• Quality Problems: In an overwhelmed system, primary services may be inconsistently given the full attention necessary to maintain the business’s core financial support.
• Financial Risks: If new products or services are allowed to cause an unreasonable drag on staff hours, finances, equipment, etc., losses can be large and can happen quickly.
• Operational Issues: Multiple revenue lines may necessitate additional accounting help to maintain accuracy, and compliance, and confirm a new line’s profitability or performance failure.
• Brand Identity Confusion: The company’s branding can become confused by a switch to promoting new services or products. PR is key to maintaining clear messaging about what your business offers.

Managing Multiple Revenue Channels

Selecting an additional product or service that best fits within your existing business model is essential to sustaining the long-term smooth operations of your company. Use performance tracking metrics to monitor the financial performance of new lines and existing ones.

• Choose new channels that fit well: Carefully scrutinize new revenue lines for any issues with excessive maintenance needs, requirements, pricing problems, sales issues, or process struggles. Avoid additions that disproportionately increase operating challenges.
• Track performance of all income lines: Track Cost of Goods Sold for individual revenue channels, including its percentage of total business overhead costs. Ask your accountant for input to help you determine realistic channel operating cost percentages. Set and enforce realistic limits.

As You Dive Into a New Income Stream

Before you roll out a new product or service offering, spend the necessary time learning to help ensure that it’s a good fit for your company. Include thorough consumer market and competitive market research. Then, follow through with proper planning, testing, training, targeting PR, promoting, and selling.

Reinforce your company’s core offerings, to protect your brand’s reputation for quality and reliability. Don’t let your relationships with your employees, current customers, vendors, or other stakeholders in your smooth operations be compromised as you implement the modified business model. Naturally, some resources must be diverted to launching and maintaining the new endeavor. But, the priority must always be to preserve the reputation you’ve worked to build on your core services to your valued current customers.