Do You Rely Too Heavily on a Few Customers?

  Be Prepared for the Unexpected 

One danger that many small businesses flirt with, is the over-reliance on one or two large customers.  Especially if those customers are currently sending enough business to keep things busy.  The obvious risk is that the customer might suddenly disappear.  As unlikely as it may seem at the time, it happens frequently.  Even if you have a long-term contract, a downturn in business could cause financial problems that would inhibit a customer’s ability to pay in a timely manner.  If more than 10% of your total revenue comes from just one customer there may be reason for concern.  I am not suggesting to pull back on a relationship that will likely continue to be very lucrative.  My warning is to not become complacent.  Business development efforts should never slow down, especially if you have a customer concentration issue.  Fill every gap in production time with new clients, even if they are much smaller.

Today we live in a much more volatile business environment than prior to the financial crisis ten years ago.  Fortunes seem to turn on a dime.  I’m familiar with a few small businesses that do a lot of government contracting.  Depending on how things are going in Washington, DC, this can be very profitable, or it can be dry as a desert.  Early in the Obama administration when the stimulus package was passed many businesses (especially construction) were able to secure contracts for different infrastructure projects.  The problem with relying on jobs that come about in this way, is that they go away as quickly as they came.  A few short years after the stimulus the politicians put in place the sequester.  This dried up most federal money for non-essential projects.  This is not to argue the politics of what was right or wrong about this.  It’s to illustrate how fleeting success can be unless you continually back-fill your current client base.

 

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