Courtesy navigation

I’m too reliant on a single customer

Reliable customers are the lifeblood of every business. When you find one so satisfied they take up more and more space in your order book, it could feel like you've won the lottery - it means predictable cashflow, secure profits and a platform for growth. However, having the lion's share of your business tied to another company is a risky strategy. Your fortunes are tied to theirs. If their business flounders, so might yours

Even if your big customer maintains their custom, they can constrict your cashflow by paying late or exploiting your dependence on them to push your prices down. Furthermore, as you direct more resources towards your big source of income, you are likely to neglect other customers and see them melt away.

Manage the risk

Despite these reservations, you would be foolish to turn down such a lot of business. The key is to manage the risk attached to servicing the client, and to use the extra revenue to make your business more secure.

You should have financial protection in place, for instance. Always do credit checks on customers and enforce contractual penalties for late payment. Make sure contracts with your own suppliers are secure, too.

Try to avoid borrowing to buy new equipment or to employ more staff to meet your customer's needs. A better option might be to lease equipment, to employ freelance staff or to subcontract parts of the work to another supplier - at least until you feel secure enough to make long-term investment in your business.

In the meantime, work closely with your customer to secure their long-term business. This could mean suggesting ways to fill gaps in their offer, anticipating trends in their marketplace or exploring joint ventures. Network strategically with their staff, so you know what's going on with their business and can anticipate their needs.

Expand outwards

Using your big customer as a springboard for developing your business is a good strategic move. But make sure that whatever investment you make in your own business results in an improved offer to other potential buyers, too.

One way of ensuring you don't take your eye off other opportunities is to take someone on specifically to look after your major customer, or to source new business elsewhere. You should also use your extra income to fund marketing activities and open up new sales channels, routes to market and overseas markets; but be sure any expansion is carefully managed.

As far as possible, use your customer's reputation as a lever to win new business by asking them for references and referrals. More radically, you could align your interests more permanently with theirs by offering them a portion of your business. This will bring an influx of cash into your firm; but it will also erode your independence.

Keep it in proportion

Some business experts suggest that allowing any customer to take more than 20% of your business is too great a risk. You need to determine for yourself just how much is too much - but however you respond, make sure that you keep your cashflow secure and your sales options open in order to survive the ups and downs in your relationship.

You might also be interested in: