The dangers of over reliance on one key customer Does your agency have one or…
Do you know what percentage of your total revenue your largest client brings into your business? (if you use Kashflow you can easily find out by using the “income by customer report”)
Could you cope if that customer decided not to work with you anymore? What changes would you have to make to your lifestyle/ business/ team as a result?
All too often, small businesses land what seems at first a great client. This client grows and with it, their demands. This is great news for your business as you are getting busier and busier off the back of these demands and earning bigger and bigger incomes. Eventually, they become an integral part of your overall business income.
But what happens when the relationship ends? – and it will (at some point!). I’ve seen small businesses go out of business because of their over reliance on one customer.
The relationship could end for a number of reasons:
- A member of your team could “tick” the client off
- The client could get bought out and the new owner wants to use their supplier
- The client could appoint a new “Head of” who has an existing preferred supplier
- The client could decide it’s going to be cheaper to take the work in house and hire their own team
- The client could decide that they are over reliant on one supplier and decide to “spread the wealth”
And probably many more…….
The key question is “What would you do if (when) this happens to you?”
Of course, the easiest answer is not to put yourself in that position in the first place. Always ensure you have a diverse portfolio of clients.
However, that’s not always practical. You may already be in that position or you may feel that the work is too good to turn down. In that case, I’d always advise:
- Know your position. Just how reliant are you on this client
- What impact would the client leaving have on your financial results?
- What specific actions would you need to take
- What steps can you take now to lessen the impact
- What steps can you take to diversify your portfolio, so that you don’t become over reliant in the first place.