OVER-RELIANCE ON ONE CUSTOMER/ FEW CUSTOMERS
On the face of it there’s a lot to be said for having one or maybe a few large customers – established communication channels and ways of working, predictable, steady, on-going cash-flow. It all seems good but there are significant drawbacks to relying on a small pool of customers….
- You have little control over the factors that influence your customers. They may experience problems with their supply chain, meaning they have to cancel a big order from you, or perhaps they switch without warning to another supplier who is more competitive. All of a sudden that predictable cash-flow dries up, leaving you high and dry.
- Even if big customers sustain their buying with you, they have the power to drive your prices down or constrict your cash-flow by paying late.
- Banks are wary of clients who rely on one or a few customers, they are only too aware of how the fortunes of the few can affect your business.
- A major customer may want to increase their purchases from you – sounds ideal, right? In reality this will mean drawing your attention and resources away from your smaller clients. Lose them at your peril – they are your buffer from the vagaries of the large customer’s market stresses.
So how can you minimise the risk?
- Early on in your business, set about sourcing customers that will generate diversified revenue. Focus on profitability rather than revenue, thus you can measure the real value created for your business.
- If you do have those one or few large customers, keep a weather eye on the market in which they operate and plan a strategy in advance that you can implement in case those customers experience difficulties.
- Communication is key – the more you know, the quicker you will find out issues and the longer you will have to do something about it.
- In the excitement of landing a big customer, don’t overlook the necessity of carrying out credit checks and build in penalty clauses for late payments into contracts.
- Where possible, diversify your sales even within your larger customers.
- If you need extra resource, or want to stay focused on core issues, consider outsourcing those areas that take your time but don’t contribute to your bottom line.
- Don’t be lulled into a false sense of security by your big customers’ spin! Resist taking on extra staff or buying equipment specifically to service that big customer, unless you can put those resources to use elsewhere should you lose that customer’s business. If you DO invest, make sure your smaller customers know how those investments will benefit them, and play safe – lease equipment!
- Be brazen in promoting your relationship with the bigger customers – it gives you credibility and clout in a competitive marketplace, drawing in new clients.
Only you can decide what level of risk you’re prepared to take in allowing any customer to take a major part of your business. Some experts say 20% is the upper limit. Whatever you decide, keep your cash-flow secure and your sales options open.