Have you ever thought that those same customers could be putting your company at risk?
The risk comes in if those 1 or 2 'big' customers make up a significant portion of your revenue, or more importantly, profitability.
What is a “significant portion”? To answer that - think about this: What would happen to your business & employees & cash flow if you should lose one or more of those 'big' customers tomorrow? No notice - just gone.
Obviously it would hurt, but would your business survive? Would you have to lay off employees? Reduce manufacturing space? Take out a loan? Would you be able to make payroll?
Many times companies earn an increasing share of business from a particular customer. It builds in volume over time - that's great. Or sometimes you win that big account and reshape your company around serving them - that's great also. What's not great is if you don't step back and look at the big picture - how those couple 'big' customers look compared to the rest of the customers you serve.
Having the majority of your customers in the same industry can cause the same risk. Just look at how many manufacturing & machining companies went out of business due to the automotive industry downfall over the past couple of years!
So, if you look at your customer base or your industry base and realize that you ARE “at risk” if that business should go away tomorrow - what should you do?
Put a plan in place NOW to start diversifying that risk.
The goal is to reduce the percentage of your business directly related to a particular customer or industry.
How can you do that? 3 ideas to consider:
- Grow your overall revenue so the percentage of revenue received from your 1 or 2 'big' customers decreases
- Diversify your customer base - put plans and sales incentives into place to secure more customers in additional industries that you can serve effectively
- If capacity is an issue, start replacing lower profitability business from your 'big' customers with business from new customers or by securing more business from some of your smaller customers
If your business is at risk, don't delay - you never know when that fateful “tomorrow” will arrive!
Particularly when a large customer knows he is your largest customer, they will often demand, and receive, terms, services, lead times, etc. that negatively impact your profit picture. It is therefore important to periodically review the overall profitability of all your customers, and find out who you can, and cannot continue to do business with.
ReplyDeletePosted via LinkedIn:
ReplyDeleteThis is on my mind every day and that is why we are trying to grow with new customers every day.
Posted via LinkedIn:
ReplyDeleteWe had this exact situation impact our company. We had an early wake-up call (and many ensuing sleepless nights!) that made us recognize the need to expand our customer and industry base. It took effort from every member of the organization to accomplish this. It was a multi-year process, so I strongly suggest that anyone in this situation heed the last sentence in the article. As we continued to grow and improve, our major customers also continued to grow their business with us. So it actually became a never-ending process for us, and probably should be for most companies. From my experience, I would restate the goal to follow the "law of attraction": The goal is to increase the percentage of your business with other customers or industries.