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Revenue Streams Diversification from Private Contracts Instead of Government Contracts

Why must you focus too often on government contracts? There are still many difficulties in government contracts which small businesses must face so if you are a business owner, you should spend your time to invest in private contracts, too.
By Linda Au | 8 min read
on December 17, 2019
Image credit: Press Associate

The government contract is one of the factors that can help your business grow tremendously. But it doesn’t make sense for every business to bid on contract opportunities. Besides, it also has cons that can lead your business to the risks. Therefore, you should not totally focus on how to win a government contract. Revenue streams diversification is an essential task at the moment. You can invest in the private contract through some marketing methods and business strategies to drive your business to success and avoid unexpected risks.

Before diversifying revenue streams from private contracts, we think that you need to understand how the benefits of government contracts attract small businesses.

Pros: Benefits of Government Contracts

Consistent payment

It is challenging to become a federal, state-level contractor, but once a company is chosen, they often are contracted for a long time. Thus, the public contract allows businesses to receive steady monthly revenue that helps owners develop their businesses fast. Moreover, in slower months of business, it’s advantageous for businesses to maintain development because monthly revenue comes from a trusted source.

Strengthen company value

Your business can still get benefits from maintaining a public contract even when you’re ready to sell. By procuring this steady workflow, you’re increasing your company’s value. If you decide to sell, you’re able to pass a contract on to new buyers that not only make selling more advantageous but also assists with obtaining loans and lines of credit.

Expose to more opportunities

There is a government agency in your client list that is a good opportunity for your business to attract future clients. They will gain higher levels of trust in your company. Furthermore, you can also develop relationships with people who can lead you to lucrative opportunities.

Advantages for female- and minority-owned companies

If you are an owner of your company either a female or a minority, you can be at a serious advantage for receiving a contract because the government strives to award a certain amount of federal dollars to both of these groups as well as small businesses each year.

The buying process is straight forward

All the eligibility requirements, regulation, and the process may make you uncomfortable. Although the process can be time-consuming, it is not too difficult as you think. You just follow all the instructions described in the request for proposal, everything will be a lot easier.

Online resources

There are many online information resources for potential contractors to find out new bid opportunities and get further knowledge about an RFP. Moreover, many companies provide professional consulting services and can help you with an effective capture strategy and unique proposal development.

Good compensation

The government is willing to pay more money for everything to be done correctly and comprehensively if you do business with them. They can pay for contractors more than full-time government workers doing similar jobs.

Cons: The Disadvantage of Government Contracts

Lots of rules

When working as a government contractor, businesses take a lot of paperwork such as applying for special qualifications and codes to be able to work with the government. Besides, businesses must strictly follow the Code of Federal as well as other labor standards.

Furthermore, all costs the government pays are public information. Everything will be documented even jobs are not completed correctly or do not follow the set rules.

On the other hand, businesses have to keep their paperwork in order because the government can put in a request for their contracted businesses to be audited anytime.

Slow payment

Contracted companies certainly get paid well, but the government can take upwards of 60 days to pay for completed services. Government contracted businesses often turn to government invoice factoring to ensure they have a steady cash flow while working the job because operational costs must be covered and payroll still has to be made.

Steep competition

Most businesses gain a steady profit from government contract, so they always want a piece of the market that creates a competitive market. Therefore, small businesses must compete with large companies and often lose out due to a lack of resources. They need to find the niche to land contracts suited to their specialty.

The Connection Between the Pros and Cons of Government Contracts

While working with a federal contractor can lead to a long-term work contract and many benefits for some businesses, there is still little stability in the industry. The government can decide to stop working with a certain business at any time with little to no warning.

So small businesses should not totally focus on public contracts to avoid risks. On the other hand, each product or service will be meet the different needs, markets, and targeted customers. Therefore, owners must spend time to invest in different private contracts instead of only the government contract.

Except for avoiding risks, investing in private contracts is one of the ways for businesses to diversify revenue streams. The lifeblood of a business is the revenue stream because it will protect your business’s future. you need to understand why diversifying your revenue streams is important – and how it’s done.

The Importance of Revenue Streams Diversification

Avoid risks

In order to stabilize financial positions, reduce the risk of financial crises and avoid depending on any single revenue source excessively, businesses should establish and diversify the revenue stream.

It doesn’t matter how loyal your customers are, or how well your relationship might be working right now. The change can occur anytime. For example, a fluctuation in financial circumstances that requires a renegotiation of your contract or find a better deal elsewhere.

If you are a business owner, you should look for new sales continuously to safeguard against future financial crises by building a solid portfolio of customers.  

Make the most of resources

Small business owners do not often know how to make the best use of resources. It can take time and experience for them to identify what strengths are and take advantage of strengths effectively.

The diversification helps businesses optimize the use of resources and realize their potential. You can diversify horizontally such as add a new product or service to attract your current customers or jump into an entirely new market segment with a new customer base to achieve fairly high growth. However, you must aim for the best return on your investment possible in any way.

Create more opportunities

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The main revenue stream is becoming a more demanding focus until it takes over everything. Although those are your loyal customers or most lucrative income source, they can also hinder the development of your business by taking up too much of your energy and time. You will not have time for taking advantage of new opportunities.

In contrast, if you take part in exciting new markets and be able to fill a niche that satisfies your existing customer base, you will expand income without increasing your extra cost.

How to Diversify Business Revenue Stream from Private Contract

In order to get private contracts, businesses must build brand image and give potential customers the belief. It is a long-term and complex process that owners and their team must spend much time to find out the right ways to perform. However, core factors to build the business brand as well as get private contracts are summarized in 5 ways following.

#1. Determine resources

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You need to define your strategic assets to discover new opportunities by checking what your business does well, whether your resources are being used to support these strengths or not, where you may be wasting time and money. After determining your resource, you will know where you should invest and how to use resources to add value for current customers in an entirely new market.

#2. Refine marketing strategies

No matter your small business is developing sustainably, you can’t afford to be complacent. Spending your free time every day to capture and chase potential customers is an essential task. However, if your resources allow for it, you should hire a marketing team to look for new sales at all times. Some of our articles following can support your business marketing strategies:

#3.Conduct competitor analysis

Pay attention to businesses that address the same target audience as you to learn from their wins and losses. In addition, you're also not allowed to ignore your competitors even if your product is slightly different than theirs or very different. Because both are not only targeting similar products but also the same audience.

#4. Partner with established businesses

Small businesses can team up with large businesses that earned the trust of customers. If you are a business owner, you needn't enter into a partnership that is long-term and legally complicated. You should only target established companies that complement your product line and offer to promote their products or services in exchange for an endorsement.

In addition, forming partnerships with trusted nonprofits by volunteering services or raising funds for community initiatives is also a good way to build credit-worthiness of business.

#5. Engage with customers

Customer testimonials are a powerful way for a business to gain credibility. Whilst statements made by the business might sound like impolite bragging, those same words from another person can be extremely effective at generating trust.

In order to persuade potential customers to work with your team, you must prove that your business can deliver. The most valuable kind of proof are videos or written testimonials from trusted businesses. The web page includes testimonial sections which is one of the most visited pages.

Organizing and Planning for Effective Strategies Implementation

So that your business strategies are performed effectively, you need to apply some organizing methods to manage the whole working process. If you did not supervise everything from the very first, they would be barking up the wrong tree.

Internal and external factors affect strategies

The business's success is dependent on two aspects of strategic fit.

First, its competitive and marketing strategies must fit the needs and desires of its target customers and the competitive and technological realities of the marketplace.

After identifying competitive strategies that are appropriate for the current circumstances, your business must be capable of implementing that strategy effectively that includes factors such as a business’s organizational structure, internal policies, procedures, and resources. These factors must fit the chosen strategies or else implementation will fall short.

Classify and combine strategies to get high effectiveness

The chosen competitive strategy tends to influence marketing strategies. In this particular case, competitive strategy means differentiating via superior product or service quality or by being the low-cost producer.

For example, a business often promotes an aggressive new product development program with extensive advertising and social media campaigns to build awareness of the brand at the time. Because new products or services are competitive strategies satisfied customers and gain a sustainable advantage in varying ways. This has led to the success of marketing strategies.

On the other hand, businesses should be divided into certain functional areas to optimize competitive advantages. Because a given functional area may be key to the success of one type of strategy but less critical for others.

Measure result

All strategies had been performed that lead to good or bad results. Business operators need to consider, assess current status because the measurement is the key to optimizing any process, and marketing campaigns are no exception. Performance indicators of strategies will show you what works and what doesn't. Base on that, the business can know how to innovate and perform the next steps.

Conclusion

After comprehending the pros and cons of government contracts as well as the importance of revenue stream diversification, we think that you should take advantage of your resources to get private contracts. Ways to get private contracts that we provide can help you ease difficulties for the business. During its implementation, reach out to us if your business encounters any difficulties. We are ready to support you and your team.

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