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 manufacturerís unit costs typically decline with larger throughputs. The scale of business may also justify the addition of skilled personnel, office equipment and technology Ė 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 canít help but have a handful of customers who generate a large percentage of the companyís revenues. Thereís nothing inherently wrong in that. However, donít 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 companyís 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," itís not that simple. Small- and medium-sized customers are important, too. Hereís why:
If more than 30% of sales are being done with any customer, it may spell trouble. From a risk viewpoint, itís best to have no customers accounting for more then 10% of revenues.