Are Big-Name Customers Good for Your Business? | ||
When prospecting for new customers, it is usually very positive to note that most businesses already have one or more "big-name" customers in their stable. The prospect will likely believe that the large company chose them based on their superior products or services, and assume that they are a credible supplier. It just may cinch the deal, right? Besides credibility, large clients bring prestige and significant revenues to a business. And the scale of serving a large customer may lower product costs or allow the owner to purchase production equipment. For example, a manufacturer’s unit costs typically decline with larger throughputs. The scale of business may also justify the addition of skilled personnel, office equipment and technology – making a business more attractive to other prospective customers. However, from an overall business standpoint, what are the risks of a single customer comprising a high percentage of the revenues? Consider these possible downsides:
Of course, many small businesses can’t help but have a handful of customers who generate a large percentage of the company’s revenues. There’s nothing inherently wrong in that. However, don’t let the 80/20 rule of thumb make you a slave to one or two large customers. The 80/20 rule maintains that 80% of a company’s business comes from 20% of its customers. And a common strategy asserts that a company should coddle its "best" customers, at the expense of its smallest. Like many "rules of thumb," it’s not that simple. Small- and medium-sized customers are important, too. Here’s why:
If more than 30% of sales are being done with any customer, it may spell trouble. From a risk viewpoint, it’s best to have no customers accounting for more then 10% of revenues. |