CASE STUDY - ANCILLARY BUSINESS OPPORTUNITIES

By: Richard Peters
http://ca.linkedin.com/in/richardpeters2/

In almost every organization in which I have been involved, ancillary business opportunities have often provided, what I describe as, low hanging new revenue sources.

In most of our businesses, our primary focus is on the mainstream products and services our companies offer. These provide the bulk of any organization’s revenue growth. They are the mother nest business. We train our sales forces to doggedly pursue growth in these revenue centres. Our sales staff is rewarded on their success achieving their targets.  But what would happen if we stood back occasionally and objectively looked at our operations and analyzed the operations of our clients with the objective of identifying what else we could be doing with the assets we already have to provide additional products and services to the client. Let the thought process move in every direction in search for new opportunities. You might be amazed at the revenue opportunities that exist which require very little additional investment and could represent significant high margin business.

I use several key parameters when prioritizing ancillary opportunities:

• Is there additional revenue to be made that we ordinarily would not have earned?
• Are we already knocking on the door? I recommend looking beyond just sales staff activity, examine all aspects of your operation. I recently was involved in discussions regarding a company that had service staff entering the offices of over 30,000 small, medium and large businesses on a monthly basis to fulfill their service requirements. This company was not in the delivery business but we did identify a number of opportunities where these service reps could be used to provide deliver services for other non-competitive companies. 
•  Is any additional investment minimal both in terms of money and human resources? 
•  Does the opportunity have the potential for synergies beyond just revenue? There may be circumstances where your organization can provide a service that may not directly generate revenue but strengthens your brand, competitive position, customer relationships or provides opportunities for you to generate new challenges for underutilized staff or management that you may be at risk of losing.

 Here are some examples based on my experience that you may find helpful:

A.  I was COO with a new-media company that provided products and services to the “enterprise software development” community. Their website was an intriguing example of ancillary revenue generation. Those who contributed content to the site were paid based on a fee schedule that had fixed and variable elements. The company broke their content into categories (articles, news posts, interviews etc.) established a core value on each category (the company established a fixed fee for each type of content based on degree of effort....e.g. an article was worth more than an interview etc.). They paid that set amount plus a variable amount based on views of the specific piece. They would generate approximately 150 new pieces of original content/topics monthly. 

Their content just kept getting better and more relevant because they could continually monitor its popularity and the contributors were motivated to keep abreast of what were popular topics because it was in their best interests to give the readers more of what they wanted. The company also aggressively tagged all content (probably 4-5 tags per topic). The tagging allowed for cross referencing to items for sale such as online books (most of these books were custom written just for their audience), lead generation assets etc. They could target advertisers or product/service providers based on readership patterns. Client products or ads would be posted on pages where articles or other content appeared that contained words or phrases tagged to their product or service offering.

The company also published e-books. E-book titles were selected based on an analysis of the traffic. Since the site had a B2B focus, the content of the books tended to be need-to-know information.  The writers that created the online editorial content were the authors of the books. Management tracked a given writer’s popularity with readers and because of their tagging and tracking they could identify which of the writer’s subject categories were most popular.  The writer would then be contracted to write a book on a specific topic. The books were then sold as e-books or they could be purchased in print through Amazon. Companies that sold products or services that were relevant or related to a book’s content were invited to sponsor the book if they wished. The sponsorship deal could take 2 forms. One form was for the sponsoring company to pay a sponsoring fee. The other arrangement would be for the company sponsoring the e-book to have it made available as a free download but the e-book customer was required to register for the download and the company sponsoring the e-book got the registration. The client company paid the site operator for the leads that were generated.

By exploiting every possible ancillary revenue opportunity. This company site generated several millions of dollars relying very little on traditional advertising revenue.

B.   Consider consulting services as a potential revenue stream. I was a founding partner in a firm that provided marketing services to software companies. The main revenue generators for the company were creative services, call centre services, printing, event management, advertising and the production of various marketing assets. In an effort to differentiate ourselves we added a consulting practice.

Because we specialized in providing marketing services to software companies we decided to promote that we were experts in developing branding and marketing strategies for software organizations. We did not know that much about software but we had credibility in the eyes of the market segment we served and we knew about branding and marketing. Initially the consulting was positioned as a value-adding free service and was used to move the client a step closer to the revenue generating activities associated with marketing asset development. Eventually the consulting activity became popular and evolved into a successful revenue stream. 

Note: This example is described in more detail in the case study entitled Achieve and Maintain Competitive Advantage  
 

I am currently working with companies in the food and consumer packaged goods industries discussing and launching consulting practices as extensions of their conventional revenue streams.



C.   When I was running the Canadian acquisition program for US based McGraw-Hill, I went through a due diligence process with a Canadian engineering firm that had an intriguing business model. 

Their engineering practice had been quite successful and they had projects in numerous locations globally. In the course of their activities, they were required to hire significant numbers of skilled, semi-skilled and unskilled labour and they faced a number of training related challenges. This labour force was spread out around Canada and the world. The available expertise to train new hires or to train existing hires in new techniques was limited. There were also language issues which further restricted the available trainer expertise. In order to resolve this problem they starting to create instructional videos that could be sued to teach the required skills and techniques.  

Eventually they began sharing these videos with suppliers and other non-competitive engineering firms. This training and development video activity eventually evolved into a revenue stream and their videos were in demand around the world. The training business helped them survive some very learn years for their engineering practice. When it came time for the owners to consider their exit strategy, it was the training business that was the most marketable business. Its revenues were in the millions and surpassed those of the engineering practice. Another major benefit was that the inventory of potential acquirers was no longer limited to engineering firms or engineering focused organizations but had now expanded to include companies like McGraw-Hill and its competitors. All of which had a significant interest in expanding their training and development businesses.

D.   I was head of business development for a market leading conference management organization which organized over 100 conferences per year. The attendees at their conferences were professionals mainly lawyers, investment bankers. While their events were well attended, they realized that in any given firm only 1 or 2 professionals would attend an event. Efforts to attract more attendees were unsuccessful.

The answer was to assemble the proceedings from each event into a publication. Wait a few weeks after the event was over and then make the publication available to others in firms that had sent a delegate to the event. The rationale was that those who attended the event would return to their offices and discuss the event. Ideally this would stimulate a demand for the information from the event. Delegates would be able to reap the benefits of the knowledge or information they acquired from the event for a week or two before the opportunity to acquire the proceedings was provided to their colleagues. The proceedings were sold to their colleagues at about half the price of the event. The only people eligible to buy the proceedings were members of firms that had sent a delegate to the actual event.

This strategy served a number of purposes:

• It re-purposed the proceedings providing the opportunity to generate revenue beyond the event itself
• The margin of the sale of the proceedings was high because the costs associated with preparing the publication were quite a bit less that organizing an event.
• The publication would be passed around within the respective firm and thus continue to promote not only the event but also the event organization. Basically the client was paying for the privilege to promote the event company.

E.   When I was in charge of Trader Classified Media in Quebec, we published close to 75 classified advertising magazines, directories and associated websites that provided Quebec businesses and consumers with critical data on the used car, truck, recreational vehicle, motorcycle, boat and real estate markets. These publications and their websites were highly regarded sourcing tools or buying guides for anyone wanting to purchase previously owned items. The Trader products and services were the market leaders.

The business model was very simple. Gather photos and data on used inventory from consumers and dealers and publish it in appropriate publication or post it on the appropriate website. Every week, thousands of products were advertised. The company maintained some of the largest databases in Quebec on vehicles and real estate.

Some creative folks in the Quebec operation identified a unique opportunity to generate additional revenue using this data that they were already collecting. Trader negotiated with the government to be the government’s source of pricing data on used cars in the province. At that time, in Quebec, if you purchased a used car, when you went to the motor vehicle office to register the car and pay the sales tax, the government official would go a database to determine the “book” value of the vehicle and the tax would be based on that “book” value rather than the actual receipt received at time of purchase. Trader convinced the government that they were the leading authorities on used car prices and their database should be the one referenced by the government. The agreed upon arrangement was that the government agency would have an exclusive online access to a database that was setup and administered by Trader just for the government. The online database was constantly updated and it was accessed daily by several Quebec government departments.

The revenue generated from this online data management arrangement was significant and the margin was impressive for the following reasons:

• The data was already being collected due to the nature of Trader’s ongoing mainstream operations.
• There was very little additional administrative expense required to operate this ancillary business.
• The service was provided online so there were none of the usual publications costs involved.

Keeping in mind that this data was being used to determine the true market value of a used car or other vehicle, it was in the best interests of the used car dealers to ensure that whatever price they charged for the vehicle it was consistent with the price sourced by the government office when the buyer went to pay their sales tax. While the dealers could not have access to the actual online database, they were given the opportunity to subscribe to a service whereby each month they would receive a pricing directory which was basically a download of the database done every 30 days. Needless to say almost every used car dealer in Quebec subscribed to this print service. In addition and annual pricing directory was made available to consumers through retail stores.

Here was a case where the data was originally sold to Trader by the consumer or used car dealer through the purchase of an ad. The data was then resold to the government and again to the dealer as well as the consumer. When you think of it, from the perspective of those consumers and dealers who paid to advertise their vehicles in Trader’s publications, they were in effect re-buying the same data they had paid Trader to advertise.

F.   The real estate market also provided another lucrative opportunity for Trader.  The company published approximately 24 real estate titles in Quebec. The primary advertisers were real estate agents selling residential properties. The site we operated was called Visinet. This site was the third most visited site in Quebec after MLS and, I believe, ReMax. The main reason for the site’s popularity was the nature of its content. The site advertised real estate from any agent or agency that wanted to advertise. Unlike most other sites, such as ReMax, our site was not restricted to carrying product being sold by one company. Consumers liked the site because they could search a large selection of real estate by visiting only one site.

The site attracted a large number of real estate agents of all sizes. Many of the real estate agents who advertised had limited, if any, web presence beyond their involvement with our site. While this was good for our business, we realized that eventually they would want to have their own web identity and when that happened they may reduce their commitment to our site. We therefore decided to offer web development and web hosting services to individual real estate agents.

This business had a lot of benefits for us.

• We managed to get additional revenue from the real estate professionals that we were already dealing with.
• We kept these agents “in the family” as we helped them develop their own web identities. This allowed us to continue to nurture existing relationships and identify value add opportunities.
• Even with their own websites, they tended to stay committed to us because we could constantly offer upgrades to their web capabilities that they could not afford to do independently.
• Their exposure on Visitnet drove traffic to their own site but they liked the synergy of having their business exposed on both sites.
• This made good business sense to us because we already had made the investment in web development and hosting assets. To do this work for the agents was not a huge strain or require significant additional cost. The real estate professionals selected their web design from templates we had pre-designed and hosting requires very little administration or cost. It provided us with opportunities to better utilize existing staff or add new staff that we could not have rationalized based on just our internal requirements.
• The value adds we were providing solidified our customer relationships.
• We created additional revenue opportunities for sales staff.