Protect your revenue base with the long tail strategy

| Aug 23, 2010 | comment 1 Comment
This post is by Nagi Salloum, founder of Loomni, a Dubai based knowledge sharing & educational platform.

In short and simple terms, the long tail strategy consists of selling a huge number of items in relatively small quantities. Items can be products or services. Quantities can also refer to prices.

As an example, Amazon.com and Netflix.com generate most of their revenue by selling a huge variety of products that are in low demand or have low sales volume. Google makes most of its advertising revenue not from large advertisers, but from the hundreds of thousands of small advertisers.

The challenge of this strategy is to create systems and processes that reduces dramatically the costs of storing products or selling services. (in addition obviously to having a solid distribution model to attract thousands of potential customers). But applying a long tail strategy has immense benefits to your business, not only for generating massive profits, but for protecting your revenue base from lapsing customers.

Here is a simple example: Imagine you have 1 customer generating 10,000$ per month in profit. For circumstances out of your control (economic crisis?), this customer decided to stop doing business with you. Overnight, you are out of business.

Now consider having 10 customers generating 1,000$ per month in profit for a total of 10,000$. If 1 customer lapses, you are still strong with 9,000$ per month. Even if 5 customers lapse, you are still generating 5,000$ per month.

So assess the risk your business is currently facing and figure out how to protect your business or revenue stream (whether you are a freelancer, a startup or medium sized company, it doesn’t matter). Can you apply the long tail strategy in your business? Do you have the systems in place (whether it is customer support, staffing, account management, distribution model, inventory optimization…) to target the long tail? Can you adjust or even redesign your business model or processes accordingly?

Sign up for StartUpArabia news sent to your inbox:
 
Subscribe: Feed