What to Consider Before Diversifying Your Services
Diversifying your business offers one method of expanding and growing your profits. By adding new services to your business, you can cater to a wider audience or even a completely different market. Diversifying isn’t the right choice for everyone, but it could be for your business. The key to doing it successfully is to first consider all of the important points that can affect whether diversifying is the best move for your business. When you give it some serious thought before taking any action, you can decide what to do using the information that you need for an informed decision.
Before you decide to diversify your business, you should think about some important matters that will affect whether it’s the right thing to do.
Different Types of Diversification
There are several different types of diversification, and it’s worth being familiar with the different options. When you know how you can diversify, you can decide whether any of the options for diversifying could work out for your business.
The different types of diversification include:
- Horizontal diversification – adding new products or services that complement your existing ones and appeal to your existing customers/audience
- Concentric diversification – adding products or services with technological or marketing synergies with existing ones and that can attract new customers
- Conglomerate diversification – adding new products or services that are not related to your core business
- Vertical diversification – expanding along the chain of production and possibly controlling more than one part of the supply chain
The Advantages and Disadvantages of Diversifying
There are both advantages and disadvantages of diversifying, which you should be aware of before you decide whether to diversify your business.
There are some clear advantages to diversifying your business. If you can do it successfully, you can increase your sales and revenue and grow your market share. It could also help you to protect your business from the impact of market changes. By diversifying your services, you could have other revenue streams to rely on if your main service isn’t performing as well. It could be a great way to grow your business and give it a stronger future.
However, there are also some concerns that you should take into account. Diversifying will obviously cost money, and it could take a lot of time too. It might not be successful, and you might need to divert important resources away from your core business. There is also a risk that you might not have a lot of knowledge about the new market that you want to enter, which could put you in a weaker position.
Does the New Service Make Sense for Your Business?
Sometimes diversifying might mean doing something completely different, unrelated to your current services. But you might also want to add a service that somehow complements your current services. Before doing this, you need to consider whether it makes sense to add the new service to your business. Many healthcare professionals, health and safety consultants, or other professionals might find that it makes sense to add DOT alcohol and drug testing to their choice of services. A hotel could benefit from adding events to their calendar, or a manufacturer could create their own retail outlet to sell their products. What services might benefit your existing customers or attract new customers?
Time and Cost
The time and cost of diversifying are vital to take into account. It’s not something that you can do on a whim, and you could end up putting a lot of effort and money into diversification. You should think about what it might take to achieve your goal and whether you have the available resources to follow the plan that you create. If you’re already stretched thin, making plans to diversify might not be the best option right now.
Carry Out Market Research
It’s essential to do the proper market research before you commit to diversifying your business. You need to know that there are potential customers out there, whether it’s by surveying your existing customers or researching another market segment that could work for you. When you do some market research, you’ll have the key information that you need to make a smart decision on whether diversifying is the right step for your business. You can find plenty of existing information out there, as well as conducting your own surveys and other research to find what you need.
Diversifying your services could work out for your business, but it’s not for everyone. Don’t rush into diversifying if you want to have a good chance of being successful.
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