Escaping the project revenue trap and why you should do it
Recently, at an Asset of Value event in Johannesburg, South Africa, a room bristling with 58 business owners that collectively generate annual revenues in excess of R3bn, gathered. We spoke about building an Asset of Value in a tough economy including growing in a slow economy, socio-political noise impairing investment and a dearth of skills in the marketplace
The room vibrated, brains burst, hearts pounded, and we left well after the event in the early hours of the morning frustrated that sleep would interfere with getting stuck back into our businesses later that day.
Of the many issues raised, businesses that generate project or event-based revenues spoke to the difficulty in building momentum and securing growth funding. It was
What is a project driven revenue model?
Any business that sells bespoke or customised work has a project-based revenue model. Examples include event management services to the supply of industrial plant and equipment. Securing deals like this are very appealing. They have lots of adrenalin and anticipation. It takes
How do they affect the type of business you build?
Depending on the type of product or service you sell, these deals require specialised skills. Typically, selling and securing a project, for
What challenges does this kind of business face?
There are numerous challenges including:
- Skills – access to specialist skills to ensure that you can sell, secure and deliver the project
- Bumpy revenue –
itshard to secure reliable, predictable revenue. This makes building the business in an organised manner very hard. We refer to it as sine-wave-revenue. You spend your time chasing the deals because it requires your skill to secure them. Then, if you win them, you spend your time installing, delivering the product or service. in the meanwhile, there is no selling taking place unless you have a base of skills on board.
- Funding –
itshard to secure funding n these types of businesses. Funders want and need reliable predictable revenue to service debt payments.
- Valuation –
itshard to get a reliable valuation on these businesses. Valuation relies on free cashflowbeing generated over time. unpredictable revenues caused by the project nature of your revenue makes it hard to forecast a reliable estimate of the free cashflow.
- Sale – it’s a tough business to sell. A buyer would need to have your skills to see themselves buying and running the business.
Escaping the project revenue trap
To move into a different revenue model, one that offers more certainty and predictability is a good idea. Such businesses build momentum, enable planning and growth in an organised way and over time yield very attractive valuations. They make for very attractive investments – hence the term Asset of Value.
Here are a few of the many strategies that you can deploy to make this shift in
- Build products
Take a good look at all your projects. Identify the typical, most requested project. For example, if you are
- Augment your projects
This is a far easy route to take. Think about the automotive industry. They started by selling cars. Once bought, that was it. today, they have added a suite of additional services. From motor-plans to driving experiences to trade-in deals, they have turned a once-off event into, in some cases, a revenue stream that lives as long as you might.
A client who supplied pumps as and when to mining customers took advantage of the recession and collapse in the mining industry to turn water elimination into a service. using technology and I.O.T he no longer sells pumps used to eliminate water
- Deal make your volume
Because clients only buy as and
These are some of the strategies we have developed for clients wanting to make the shift from project revenue to regular consistent revenues. Reach us here and we’ll be sure to help you step beyond the project revenue trap.
Tags: Building your Business