When looking at ways to grow your business, diversification is one option that can make sense. While it can provide a new source of income, there are other benefits to expanding the scope of your services that you may not have considered. We delve into the potential benefits of diversification, and highlight some things to be aware of before taking the leap.
Putting all your eggs in one basket can be troublesome, particularly if there’s a slowdown in the property sector. Diversification offers you the opportunity to spread the revenue risk in your business so that you won’t be as susceptible to sudden market changes. Adding asset or commercial finance to your product suite will not only reduce the reliance on your mortgage book, it can also reduce the danger of your customers switching to a competitor with a broader offering.
Growing share of wallet
Clients always appreciate it when people make their lives easier, so if you’re able to provide them with a one-stop shop for their credit needs they may give you a greater share of their wallet. For example, by meeting all the needs of a small business owner, from their office mortgage to financing their fleet of vehicles, you can make your client relationship stickier and simplify one aspect of running their business – it’s win-win.
By diversifying into financial products, you can also deliver value to your existing clients by helping them with their other needs. If they already own a home or car then they may need insurance, or if they want to grow their investment portfolio then you will be able to assist them with wealth creation. It’s all about demonstrating both value and convenience.
You can arrange financial products for your clients if you hold an appropriate Australian Financial Services Licence (AFSL; it is different from an Australian Credit Licence) or hold an appropriate authorisation from an AFSL holder. Or, you could enter into arrangements to refer your clients to an AFSL holder or an authorised representative of an AFSL holder.
Expand your client base
While your first order of business may be to mine your existing client base, diversification will provide you with the opportunity to attract new clients as well. While residential financing may be your bread and butter, expanding into other areas such as wealth, insurance, commercial lending or asset finance will allow you to start chasing new segments of the market. Of course, some clients simply prefer a holistic approach to managing their finances, and diversification will also allow you to match this preference.
Keep it complementary
Expanding your services can increase revenue, but it’s important to ensure you are able to do so effectively. If your existing client base is made up of personal finance customers, then perhaps it doesn’t make sense to diversify into commercial finance – unless, of course, many are also small business owners. Before taking the leap, make sure that the proposed new product line fits into your overall business plan, is within your skill set, provides you with opportunities to cross-sell, and will meet the needs of your clients. This will give you the best chance of success in your expansion.
Build employee engagement
Training in any new area is important, and diversification provides you with a good reason to up-skill and develop your team of writers. While not everyone gets excited about the idea of training, most employees appreciate it when they are given the opportunity to develop their breadth of knowledge. If you’re finding recruiting and retaining talent an issue, then your new revenue stream may help you engage and hang onto your employees as well.
When done well, diversification can provide your business with many benefits, while also increasing your revenue.
Contact your Plan Australia Business Development Manager to help you navigate diversification in your business. Or, if you’ve had experience of diversification, we’d love to hear your thoughts below.