Landing a large customer isn’t always the achievement it sounds like and in todays video I explain why it’s dangerous to become too reliant on just one main client.
Why the size of your customers impacts the value of your business
What I often see when I’m talking to clients and prospects, is that there can often be a really big disparity in the size of a customer compared to the size of the actual business that serves that customer.
I think a really good example of this is often where supermarkets are buying loads and loads of products off manufacturers, which they put onto their shelves. That’s a really extreme example, but what often happens in that situation is the supermarket has all the control. They go back to that manufacturer and say, well, because we’re so much bigger than you, because we form such a larger part of your turnover and you rely on us for your business to survive, then we are going to call the shots. They say things like, okay, well, we want to pay you three months after you’ve actually provided the services. And the manufacturer has to say, okay, then we don’t have a choice. Then they come back and say, Hey, we want a lower price, and the manufacturer says, okay, well, we don’t really have a choice. We’ll just take that hit to our margins.
A large lot of these larger retailers will also say, well, we want you to deal with any issues that are caused by your product, even if it was based on the way we sold it. We want you to pay for our marketing funds, and the manufacturer says, okay, then we don’t have a choice. If you can imagine that manufacturer probably isn’t worth a huge amount if they only have that one supermarket to deal with. Because if that one supermarket then left, that business would just be worthless because they wouldn’t have any income coming in.
That’s a very extreme example. But where it gets better is, let’s say that manufacturer then works with several supermarkets and no one supermarket then forms a massive part of that manufacturer’s income, then that’s when the value of that business starts to increase because it lowers the risk. Having a valuable business is all about lowering the risk. You are always lowering the risk and your dependence on one customer. You’re always lowering your dependence on one employee or one supplier. And by doing that over and over again, that’s when you improve the value and the quality of the business.
What it is worth thinking about is, next time a really big customer comes along and wants to use your services just have a think about where the balance of power in that relationship is going to lie, because if it’s heavily stacked towards them, then the chances are, you might make a bit more money in the long term, but they’re going to make your life an absolute nightmare, and they’re going to want priority and it’s going to affect your ability to serve all your other customers. Then the other side of this is, a customer can be so small because ultimately there’s a minimum amount of effort needed to, and attention needed to deal with the client. When you’re dealing with lots of tiny little customers and they want to take up your effort and your time, and if you don’t have an easy way of being able to answer their questions without getting involved personally, then that’s really going to impact the value of your business as well. I cover that in a separate video.
But what I’m saying is sometimes just getting that really big client, isn’t always the gift that it appears to be because it can seriously damage the quality of your business. In an ideal world, you’d have clients that are similar size to you that have similar objectives to you, and you’d have quite a few of them where they all form a most similar amount of your turnover to each other. If you found that useful, if you want a bit more advice on how you can plan the increase of the value of your business, then get in touch, reply to this video and we’ll tell you about the next steps in organizing a meeting with us. And we’ll help you increase that value.