Have One or Two Big Customers? Beware!

Beware of thinking it is very profitable to have one big customer that you get to know extremely well, is easy to do business with, gives you most of its work, and is like family.

Last week, I decided to call a printer I started speaking with back in 2007. This company was in Huntington Beach, CA. That’s right, WAS. The printer was in business at least until September 2010, which was the last time we connected.

Back in 2007, I met the owner after speaking at a conference. He mentioned liking the idea of surveying customers, but the shop really only had one big customer that represented about 80 percent of its business. My first reaction was, “You’re nuts! Isn’t that scary?”

“Yes, to some degree,” he admitted, with a smile. Speaking at that time, the owner further noted, his business is very profitable and the customer is like family, the shop gets all its business, he knows the executives, and they are easy to work with. He just wished all the other smaller customers were that way. He said the business was easy to manage this way.

Fast forward to September 2010. I noticed he signed up to attend a webinar I was giving, but he never made it. I thought maybe he was busy, but for the past six months I’d been wondering how he had done over the course of the past three years. Did he still have that one big customer? Had he diversified, found other customers? Was he doing well after this horrible recession?

On April 28, 2011, I decided to pick up the phone to see how he was doing. When I called, I got the “this phone number is no longer in service” message. At first I thought maybe I dialed it wrong, so I dialed the number again. Same result.

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  • http://Steven Steven

    If you have one customer who is 30% or more of your business you had best be salting the revenues from that away for the future. To have only one customer be 80% is not even really being in business for yourself. You don’t control your destiny – THEY do.

  • http://Docucopiescolorcopies Docucopies color copies

    We were once in a similar boat, with just a handful of big clients making up the bulk of our business. Since then we have diversified immensely, conducting all of our business through the Internet and attracting a diverse array of clients, from individuals, schools and small organizations to large universities and multinational corporations.

    It’s hard to imagine we would have survived the recession had we stayed with the old business model. But unfortunately not everyone is in the position to make that kind of sea change to their business model. We’re truly seeing a mass extinction, “survival of the fittest,” in this industry.

  • http://MichaelCasey Michael Casey

    Great comments Docucopies and Steven. In another life I went to work for a startup business that had 3 customers representing over 70% of the business. It was a fast growing manufacturer who had 3 big distributors which I had to manage. When we went public the executives decided in our first annual report to put that fact in there. Well, the distributors weren’t stupid and held my head over a barrel for more discounts and incentives or they would bring on more competitors. It was an ugly set of discussions and in the end we did not move pricing and let them bring on competitors because we were confident we were the best anyway and because we could not give these big 3 an unfair distributor advantage and they would own us even more. It worked out in the end for us after many sleepless nights, but we rapidly adopted a strategy to diversify so “that didn’t happen again”.

  • http://David David

    It’s really difficult to dilute a really strong customer. You can’t, and shouldn’t tell them no. The only sane way out is to grow the heck out of the rest of your customer base.

    In 1998, my biggest customer was $6 of my $18 million in sales. The next year they were $4 and the next year they were $2 million. They are still a customer we’ve got them back up to $4 (though that is a much smaller percentage today).

    We have another customer now that is about 1/3 of our sales. And they keep buying more. What’s a guy to do? Steven’s comments are dead on. We are salting away the margins that kind of volume allows us to earn on the “whole system”. Capacity utilization is the name of the game.