The Dangers of Just One Customer

| October 20, 2016 | Financial Wisdom

It can be a slippery slope to have just one customer providing you with the majority of your income. Your primary customer can disappear with no warning, leaving your business in a serious financial crisis.

Take note of the main reasons you need to diversify your customer base and follow these tips to help you branch out to new customers.

1. Customer dependence: a major financial risk

Depending on one customer is a major liability for a self-employed individual or small business owner – and not just because your customer may one day move on. If you ever need to borrow money for your business, a lender will want to see that you have more than one reliable source of income when assessing your business risks.

If you have a long term relationship with your current customer, leverage it to draw in new prospects. Ask for a testimonial you can use on your website and in your marketing materials. Request a business referral from that customer – you might even check the LinkedIn connections of your customer in order to suggest a specific referral to someone they know.

2. Pricing pressures with one customer

Small business owners often feel squeezed between their need to turn a profit and setting a price customers will actually pay.

If your one big customer doesn’t like your prices, or pressures you to lower your rates, you can find yourself in a difficult situation. At some point you’ll have to raise your rates to stay profitable but you may worry about higher rates causing your customer to shop elsewhere.

Be firm on your pricing and explain any reasonable rate hikes to your customer – for example, an increase to your input costs. Help to warrant any rate increase by continuously adding value to the customer by doing things like referring business to them.

3. Employee loss and stalled growth

The revenue from one big customer is likely paying for a large portion of your operating costs such as payroll. Losing that big customer could result in employee layoffs – setting your business back a few steps and delaying well-earned growth.

You can mitigate some risk here by outsourcing some of the work associated with the big customer to suppliers, contractors, and freelancers. That way you can add or subtract resources as the work load warrants. Hire employees for core business functions unrelated to a specific customer account, such as marketing or bookkeeping.

There’s likely a time lag between finding a prospect and winning their business – so it’s important to start looking for new customers now. Allocate time to marketing and selling activities every day and watch your customer list grow.