We had a client who’s turnover dropped from millions to hundred thousand’s overnight by losing one customer – ouch!
Think what would happen to your business if your largest customer cancelled orders!
When Marks and Spencer switched production out of the UK a few years ago, several large companies collapsed within weeks. It happened to Bakers Pork Farms costing half the workforce their jobs!
Many businesses fall into the trap of developing an operation which becomes overly dependent on one customer. This may seem advantageous when everything is running smoothly, but could lead to failure if the ‘big customer’ pulls the plug.
Companies stop trading with suppliers for a variety of reasons:
- Liquidation
- Acquisition
- Strategy change
- Cheaper deal somewhere else
You may believe that you are protected because you have a contract, but be aware that this may be difficult to enforce in practice. The net result is that a gaping chasm suddenly appears in your cash flow – usually when you can least afford it.
There are various reasons why you could fall into this cash flow trap, lack of a clear business strategy, lack of sales and commercial skills or because your trading arrangements are built on a long standing relationship and seem trouble free and secure. Sound familiar?
A policy adopted by many successful organisations is that no single customer should account for more than 20-25% of sales. Whilst the loss of such a customer would be painful it would not necessarily be fatal. A bigger customer base provides a buffer against individual customer whims. After all, these customers are in business to make profits for themselves NOT to support you.
Your customer base can be developed in 3 main ways:
- By identifying similar customers and offering them a comparable product or service
- By using your core strengths and producing a new offering for customers in similar business sectors
- By diversifying into entirely new product and market sectors
The benefits to your business of this approach:
- You understand the business, market prices and quality requirements although you still face a risk if the entire customer sector faces a cyclical downturn
- The risks of starting a new business can be reduced by proper market research and business planning. Understanding customer requirements and the strengths/weaknesses of your competitors will allow you to assess the opportunity and plan how to be successful
New Mindset has the experience to support your business through our practical and experience based approach providing answers, processes and plans that lead to increased revenue and profit.
Government grants are available to pay some or all of our fees. Check to see if your business is eligible.
If you would like to know more about how we can support your business CALL 01276 537 282 or complete our online enquiry form, we will be in touch.