For organizations to make money and to survive in the long run, they must have constant sources or streams of revenue. Revenues come from sales, and the various categories of sales of a service or manufacturing firm are known as revenue streams. While measuring and reporting revenue is the domain of accounting and finance departments in organizations, determining new sources or streams of revenue is the responsibility of top management, strategic planners, and marketing forecasters.
INDUSTRY EXAMPLES OF REVENUE STREAMS
As one example, Internet Service Providers (ISPs) have earned sales revenue from providing fast Internet connections for individuals. An article entitled "New Revenue Streams for Well-Targeted ISPs" stresses that now ISPs should look for new revenue streams in three promising areas: the embryonic application service provider (ASP) market; the small- to mid-sized business market; and the untapped international market. The article stresses that tapping these fields may be more difficult than providing connections to the Internet for individuals, but these are the only lucrative markets still open to new entrants. The market has moved along the industry and the product life cycle curves, and thus revenue streams are changing.
Many businesses today are looking at the World Wide Web as a potential new revenue stream. Dedicated e-businesses and traditional bricks-and-mortar businesses alike see the Internet as a way to grow a business and view having an Internet presence as a way to better serve customers or reach new customers. At the 2000 annual conference of the Vermont Captive Insurance Association in Burlington, Vermont, Fredrik Motzfeldt moderated a panel on the "e-captive environment." He noted that some of the obvious e-business strategies for the captive insurance industry might include using the World Wide Web as an information facilitator and lead generator, or tapping into a Web-generated revenue stream with the Internet presence used as a way to promote business and generate quotes.
In another insurance example, banks are investigating a new and potentially large revenue stream that could come from selling insurance. To understand the importance of insurance to the current and future revenue stream of banks, the insurance division of Arthur Andersen surveyed 15 regional banks with assets ranging from $7 billion to $70 billion. As banks are faced with increased competition they must find more efficient ways to retain and grow their business. The key to their success is to find additional product lines that will allow a bank to use its existing structure and delivery channels. Many experts see insurance as a business that offers new and large revenue streams and ongoing potential for banks.
In a final example, restaurant managers and planners have discovered a new way to create additional revenue streams without a substantial capital investment. Instead of launching a second restaurant concept or adding new units to an existing portfolio of restaurants, these managers are turning to catering as a new tool to maximize existing assets as well as to increase public relations and awareness. Catering turns a restaurant's down time into preparation time for catering orders and allows a manger to use labor and facilities in a more efficient manner. Catering can include hosting events in on-site party rooms or in their own dining rooms when the restaurant would normally be closed.
Because product and service life cycles are shortening, businesses must be constantly planning strategy and determining where future revenue streams will come from to ensure their financial success and longevity.