Operations

The Perils Of Milking One Big Revenue Stream

Jim Luff
Posted on February 12, 2018

Editor’s Note: Jim Luff has been a contributing editor for LCT Magazine since 2005. He retired as the CEO of Limousine Scene in Central California after 23 years. He shares his personal experience of industry collapse and the importance of market diversity in this account.

Make sure you store up clients in more than one silo. (LCT image)
Make sure you store up clients in more than one silo. (LCT image)
It is common in this industry to complete a form asking what your business mix is in relation to the type of jobs performed. Insurance companies always ask, “What percentage of your work is retail versus corporate?”  

Survey Says
Affiliate applications ask the same question presumably to determine your corporate experience level. LCT Magazine asks the same question for our annual Fact Book. No matter how you tally up the surveys, most operators are providing some level of retail service and some level of corporate service. A handful may boast they are 100% corporate, but I would challenge that statement since corporate executives have weddings, funerals, and other personal transportation needs outside of work. Corporate clients will call upon their reliable business travel provider to handle retail runs. So, for the sake of this article, we will assume all operators perform retail and corporate work.

Once insistent on all-retail, Florida operators Mike and Marlo Denning diversified their revenue stream as their company grew. That extra gravy is what can make or break a company when the main revenue sources whither. — Marlo Denning (LCT file photo)
Once insistent on all-retail, Florida operators Mike and Marlo Denning diversified their revenue stream as their company grew. That extra gravy is what can make or break a company when the main revenue sources whither. — Marlo Denning (LCT file photo)

Breaking Down Retail
The retail market itself is widely defined by the types of jobs. Retail work includes weddings, funerals, concerts, bachelor parties, quinceaneras, anniversaries, engagement parties, and the dreaded prom and formal jobs. The retail market offers many opportunities for serving clients and making a decent living. Just ask Mike and Marlo Denning, co-owners of Elegant Limousines & Weddings in the Daytona Beach, Fla., area. For 12 years, the couple made a living out of performing only retail work.  

“We kick butt on the retail side,” Marlo Denning says. “Our plates were always full with wedding work and other retail jobs.” I have consulted with the Dennings since the birth of their company. Sometimes it was more like sparring with Marlo than consulting, as Marlo dug in and adamantly declared they only wanted to do retail work. I cautioned how important it was to be diverse and encouraged them to develop affiliate relationships. Not that weddings will go away anytime soon, but even that market is changing with an increase in the demand for party buses. I finally convinced Mike to attend the International LCT Show in Vegas. “You put the bug in our ear and gave us the opportunity to attend the show that opened a lot of doors for us and gave us a little extra gravy,” Marlo said. That extra gravy is what can make or break a company when the main revenue sources whither.

Breaking Down Corporate
Corporate work runs the gamut of airport trips, road shows, guest transportation, and of course, executive travel — whether that means from home to the office or traveling to a distant city. This is where having client diversity can matter even more than the retail environment. Retail clients are not generally your biggest clients in terms of total annual revenue. However, when you provide service for a Fortune 500 company and a single client represents the bulk of your income, a collapse in a particular industry can hit hard.  

Different industries can and do experience financial difficulties. In 2007, those that flourished by providing service to the financial industry slowed down when orders from Wall Street collapsed. It was no longer acceptable for stockbrokers to be riding in limousines, sedans, and SUVs as part of their daily travel when their investors lost millions and many jobs were lost and houses foreclosed. Corporate work generates the bulk of revenue for our industry, but if you segment and focus your marketing on big industries such as healthcare, finance, oil, agriculture, and manufacturing, our own industry will feel a trickle-down effect if the vertical market shifts. Again, don’t rely on just one primary revenue stream.

When A Big Client Gets Soaked
When a Fortune 500 company took a nose dive in 2014, it hurt the company I was running. Even with client diversification, I quickly realized we didn’t have enough eggs in our other baskets to compensate for the big drop off in orders. We handled jobs in the petroleum industry for many big names. In fact, I don’t mind naming them since I’m not giving up secrets. Their financial troubles played out in the mainstream media, such as Chevron announcing $6 billion in losses for the past two years.

The big players also include Schlumberger, Linn Energy, Exxon-Mobil, and Sturgeon Services, among many others. All these companies represented more than 60% of our total annual revenue, either through direct orders or affiliate jobs piped in by companies such as Avanti Transportation in Houston. Avanti owner Erich Reindl provided service for Schlumberger daily. When I asked if he was still doing work for them as the industry began collapsing in 2014, he told me, “It all dried up.” I handled orders for Chevron seven days a week and it too dried up. We both farmed jobs out to affiliates all over the world, every day. Now, no one was placing orders as massive layoffs took place. The trickle-down effect was turning into rapids.

Dry Spell
It was 2013 when we started talking with a large petroleum company that wanted to provide seven-day-a-week shuttle service for 25 employees each day. This would become our fourth daily service route to the dusty oilfields located about an hour away from town. We signed a five-year contract with that company and promptly bought a new Grech Motors shuttle bus and commenced service on Jan. 1, 2014.

By the end of 2014, two of our original daily routes were terminated, idling two buses. Fortunately, those were paid off and would later become income as they were sold off for survival. By the end of 2015, the company we began working for in January of 2014 laid off all of its area employees and filed bankruptcy. The bus we bought specifically for that account was 16 months old in a 60-month purchase contract. There is a big lesson to learn here. If you truly are all corporate, don’t let it be too heavy in any particular vertical market as it can tear you down in the event of an industry specific depression.

Cascades
Another major vertical market was providing medical transportation for numerous worker’s comp transportation brokers. State Fund of California (owned by the state of California) sent us work five days a week. We charged them full sedan rate and they paid it for years. Then, one day we were notified State Fund of California was farming all transportation to a company in Jacksonville, FL. This was good news and bad. The good news was we were already a provider for the Florida broker, so all the work was coming right back to us. Except the broker paid about half of what we were earning on the same jobs. The medical transportation business represented about 20% of our revenue and has dwindled down to 10% as the brokers have opted to use transportation network companies (TNCs) instead of our industry. This is another example of why you must diversify. You never know what the future holds, and autonomous vehicle service for medical appointments are coming.

Safe Bets
A few segments of our marketplace cross over between being considered corporate work, retail work, or so-called leisure travel. These include runs related to airports, cruise ships, and hotels. Companies take employee cruises and couples going on cruises like to be elegant and arrive in style, so it’s corporate and retail thrown together.

Working under contract for a cruise ship or a hotel is probably considered more corporate work based on the fact you are serving a large corporation such as Carnival Cruises or The Hyatt. You are making the corporation your customer, although you may be providing transportation for vacationers. This type of work is who you should be focusing your marketing efforts towards. This market will never go away and is the real gravy Denning spoke of.

Related Topics: building your clientele, client markets, corporate business, Jim Luff, retail markets, revenue growth

Jim Luff Contributing Editor
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