Vulnerabilities in your customer base

We have all heard of the 80/20 rule, where 80% of your revenue comes from just 20% of your customers. This is not too much of an issue if you have a good number of customers in that 20%. But what happens if that 20% equates to just one customer?

One, your business survival is at risk should anything happen with that customer – perhaps the relationship sours, their business takes a nose-dive for some reason, they get a better offer elsewhere, key personnel change or any number of other events that can impact on their custom with you.

Two, because your very survival is dependent upon that customer, they hold all the cards. They can constantly beat you down on price whilst simultaneously increasing their demands on you. This is just not sustainable long term.

This is extreme end of the scale – but still not at all uncommon for many small businesses. However, even if your 20% is made up of more than one customer, reliance on individual customers for significant proportions of business is risky.

Does this sound familiar? Then act fast to reduce this reliance and the risk to your business.

1. Build your business within existing smaller customers. Explore opportunities to cross- and up-sell.

2. Expand your customer base. Be clear on your target market and why they buy from you, so you can effectively communicate your value to prospective new customers.

3. Give excellent service to and maintain regular communication with the important few. This will help to identify early on where business might be at risk.

4. Keep a tight control on overheads and other costs to minimise the risk to the business should a significant revenue stream dry up.

Next time, we will look at a very common area of risk within small businesses – over-reliance on the business owner.