How do I avoid over-reliance on a big customer?
I run a corporate catering business which has grown rapidly since we started three years ago, fuelled mainly by a few large customers who are continually increasing their orders. However, I’m worried about what would happen if the big orders stop. The last thing I want to do is turn business down, but how do I best mitigate this risk?
A. Colin Mills, managing director of the FD Centre, writes:
I would recommend the following:
Commit resource, time and cost into managing the relationship with your key customers. This needs to be you, or someone you can really trust with the right experience.
Be prepared to handle your large customers differently. If the customer is open and seeking a collaborative relationship, then you should seek to show greater transparency, which can help them understand your situation. Most customers in this category will want you to make money. If, however, your customer wants a one-sided relationship, where they are trying to use their power, you need to put in place a very strong negotiator to deal with them.
Understand the true profit you are making from each customer. This means taking a hard look at the direct and indirect costs associated with the customer, including those incurred in managing the relationship. It’s easy to take on business only to realise later that you’re making no money from it.
Find out what makes you so attractive to your customers and how easy it would be for someone to replicate what you are doing.
Work hard at developing a business that manages out very large customer risk. This starts with getting the big picture right and the key question is: what do you want your business to look like over time, and what level of customer concentration do you feel comfortable with? Then work at creating a business ‘shape’ that moves you towards your future aim.
This is a pro-active stance which will take upfront time and commitment. It requires courage to manage the business rather than allowing the business to manage you.