It’s easy to tell what makes up the bread and butter of a business’s revenue.
- For Apple, it’s phones and computers.
- For Coca-Cola, it’s refreshments.
- For Toyota, It’s vehicles.
- For CrossFit, it’s memberships.
Most businesses have more than one way of making money. They do this by offering additional services or products that help support their main business operation. The additional revenue from this activity is called ancillary revenue.
These ancillary services might not bring in MOST of the money, but they make the main product look more enticing by being positioned as a desirable add-on or an enhancement.
- For Apple, it’s Cloud Storage subscriptions.
- For Coca-Cola, it’s merchandise.
- For Toyota, It’s a premium care package.
- For CrossFit, it’s active clothing and personal training sessions.
If you’ve ever wondered how you might generate ancillary revenue or how it might work for your business, stick around and we will dive right in.
What is Ancillary Revenue?
Ancillary revenue refers to the additional income generated by businesses beyond their primary sales or services. These ancillary revenues could be those little add-ons, upgrades, or complementary services that they offer alongside their core products.
You’ll find ancillary revenue strategies being used in sectors like hospitality, transportation, e-commerce, and more.
Think about it this way – when you book a flight, you might get asked if you want to pay extra for priority boarding, choose your seat, or check a bag. These are all examples of ancillary revenue. Airlines have mastered the art of making money from these “extras.”
Why Offer Ancillary Products?
Here’s a few reasons companies choose to offer ancillary products or services.
Revenue Diversification
First and foremost, offering ancillary services and products can provide an additional revenue stream so that you reduce reliance on a single product or service for profit.
Customer Retention
Having complementary products or services can be a great way to build loyalty and improve customer retention. This is why car dealerships might offer discounted mechanic or concierge-level services to customers.
Competitive Advantage
By offering related services or products, ancillary offerings can set you apart from competitors and attract a broader customer base. Have you ever made a decision to go to a particular gas station because they ALSO had a car wash?
Cross-Selling Opportunities
I don’t need to tell you how many insurance companies bundle home and auto insurance. I’m sure you’ve heard, read, or seen an advertisement about it today. It’s simple, if you can bundle similar products or services together, you encourage people to buy more.
Enhanced Customer Experience
Customers like it easy. Providing a one-stop solution improves customer satisfaction and convenience. Enhancing customer experience creates loyalty.
Opportunity to Upsell
Ancillary offerings can lead to upselling, increasing the average transaction value.
When was the last time you got your oil changed? Did they recommend any other services? A new air filter or an alignment?
If you’re already spending money on an oil change, chances are you’d be more willing to pay for services on your car same day rather than booking a separate appointment on a different day.
Seasonal Buffer
Ancillary products/services can help balance seasonal fluctuations in your primary business. During Christmas, retailers open their lots to sell Christmas trees.
Ancillary Revenue Strategy Examples
Earlier, I gave some brief examples of how to add revenue opportunities. Here are some industry-specific ideas.
Airlines
Airline ancillary income doesn’t end with the ticket price. Airlines are great at earning ancillary income.
- Baggage fees: Airlines charge passengers for checked baggage and, in some cases, even for carry-on items. This ancillary revenue source has become a significant contributor to airline profits, with fees varying based on baggage weight and size.
- In-flight services: Beyond the base ticket price, airlines offer passengers the opportunity to purchase food, beverages, and entertainment options during the flight. These services can range from in-flight meals to in-seat entertainment systems, generating additional income.
Hotels
Everyone knows not to touch the minibar! Here are some other ways hotels take advantage of ancillary revenue streams through services offered.
- Room upgrades: Hotels frequently provide guests with the option to upgrade to more luxurious rooms or suites for an additional cost. These upgrades may include larger spaces, better views, or additional amenities that all add on ancillary charges.
- Wi-Fi fees: Many hotels offer basic Wi-Fi for free but charge for premium or high-speed internet access. Business travelers and guests with greater connectivity needs often opt for this paid service.
- Hotel Gift Shop: Hotels in popular destinations can make additional revenue by setting up a gift shop in the lobby. Tourists stocking up on souveniers will serve as yet another income stream.
Theme Parks
If you’ve been to a fair or theme park recently, you’ve experienced the hidden costs.
- FastPass or Express Pass: Theme parks sell FastPass or Express Pass tickets, which allow visitors to skip regular lines and board popular attractions more quickly. This option enhances the visitor experience, particularly during peak periods.
- Photo packages: Theme parks have professional photographers who capture moments from guests’ visits. Visitors can purchase photo packages with printed and digital copies of these memories.
Online Marketplaces
Free online marketplaces need to think of creative ways to earn additional income (while still offering an enticing service)
- Listing enhancements: Online marketplaces provide sellers the option to pay for listing enhancements. These may include promoted listings (which appear more prominently in search results) or additional image slots to showcase products effectively.
- Transaction fees: Most online marketplaces charge a percentage of each sale made on their platforms. This fee can vary based on the category of the item being sold and is a primary source of revenue for these platforms.
Property Management
Property management companies depend on filling vacancies with reliable renters. Here are some other ancillary revenue streams they can benefit from.
- Short-Term Rentals. Providing a space for an event or pop-up shop can help hedge against tenant transition or market slow times.
- Storage. Everyone has something to store and savvy property owners can turn unused space into consistent revenue. Renting out on-floor storage units can rack up considerable ancillary revenue. For example, if there are unrented rooms in your apartment complex, you can rent these apartments out as storage space (which will carry you through lulls in applications). You can even rent out unused parking spaces to non-tenants needing vehicle storage or monthly parking. All you’ll need to do is list your property on a peer-to-peer storage rental marketplace like Neighbor. Before long, you’ll have renters filling vacancies, which will turn your complex’s parking lot or parking garage into a cash-flowing opportunity.
Downsides of Chasing Ancillary Revenue
All ancillary revenue opportunities aren’t worth chasing. Clearly, some unintended consequences can occur if you’re not careful.
Customer Dissatisfaction
If you’re finding it challenging to keep customers happy now, Introducing too many add-on fees or services in pursuit of ancillary revenue can lead to more customer dissatisfaction. Customers may feel nickel-and-dimed or annoyed by the constant upselling, potentially damaging the relationship with the brand.
Reputation Risk
Overemphasis on ancillary revenue can harm a company’s reputation. If your customers perceive that you prioritize profits over their satisfaction, it can lead to negative reviews, reduced trust, and long-term damage to the brand’s image.
Cannibalization of Core Business
Don’t lose sight of your core business. Focusing too much on ancillary revenue might distract a company from its core products or services. This distraction could lead to neglect of the core business, impacting quality, innovation, or customer service in the primary offerings.
Competitive Disadvantage
While seeking ancillary income, businesses might risk losing a competitive edge by driving customers to competitors who offer simpler, more transparent pricing structures and better overall value.
Short-Term Focus
The pursuit of immediate ancillary revenue might compromise long-term customer loyalty. Prioritizing short-term gains over the long-term relationship with customers can result in lost repeat business and brand loyalty.
Ancillary Revenue. Done Right
At the end of the day, almost every successful business relies on some sort of ancillary revenue stream. In more cases than not – your business will be able to greatly benefit from introducing a complimenting product or service. In today’s unpredictable market, more revenue is rarely a bad thing!
Conclusion
Ancillary revenue opportunities are different for every business and finding the right one can be a challenge. With a little extra effort, and by focusing on your customers and understanding their needs, you can focus on delivering ancillary products and services to better serve them and increase revenue for you.
Neighbor is the perfect Ancillary revenue opportunity.
If you’re looking for a flexible, stress-free way to add ancillary income to your business, there’s an ancillary revenue stream that’s durable in all economies – space. If you’re willing to rent out your business’s on-site parking lot(s) or unused office space, you can achieve additional income streams. Plus, unlike other ancillary revenue opportunities, your customer base won’t feel up-charged, as you’ll be able to offer storage at a fraction of the cost of traditional storage facilities.
Easy, right? Become a host, and increase your revenue potential.
