The biggest customer sends a new order every month. The work is steady, the invoices are paid, and the owner is happy. Then the customer changes supplier, merges with another company or simply cuts its budget, and half the revenue disappears in one email. Nothing was done wrong. The risk was just never written down.
Relying on one big customer is not a mistake in itself. For a small company it is often how things start. The problem is not knowing how big the dependence is and having no plan for the day it changes. This article gives a short routine to measure it, set a limit and widen the base.
Measure the share
Take the last twelve months and make a simple table with three columns: customer, revenue and estimated margin. Sort it from the largest. Then calculate:
- the share of total revenue for the biggest customer, and for the top three together;
- the share of margin, which is often higher than the revenue share because large customers can be well managed, or very discounted;
- how many months of costs you could cover without that customer.
Use whole numbers. A spreadsheet that takes an hour is enough. If one customer is billed under several names or entities, add them together, because they will leave together.
Set a safe limit
A limit turns a vague worry into a decision. There is no universal figure. Many small firms feel comfortable below a quarter of revenue for one customer, and uneasy above a half. Pick a number that fits your cash reserves and write it down, for example: "No single customer above 35% of revenue; above 25%, we review the position every month."
Add one line about what happens when the limit is crossed. It can be modest: pause discounts for that customer, put a part of every new sales effort into other segments, or check the contract terms. Decide this when things are calm, not in the week the customer is late with a payment.
Know the warning signs
A big customer rarely leaves without a signal. Agree two or three that you will watch, and check them at the same time as the share:
- payments getting slower than the agreed terms;
- orders smaller or less frequent than the usual rhythm;
- a new contact person, or a sudden request for a fixed price, a tender or "alternative quotes";
- the customer's own news, such as a reorganisation or a change of owner.
If one sign appears, do not panic and do not send a worried email. Arrange a conversation. A regular meeting with the customer is the best protection, and the agenda is described in a quarterly review with a key customer.
Widen the base in small steps
The usual reaction is a big sales campaign after a scare. It rarely works, because it is started late and stops as soon as the big customer sends work again. A small weekly habit works better.
- Choose one kind of customer you already serve well, with a similar need and a smaller size.
- Set a weekly target that is realistic, such as two conversations with potential customers.
- Make sure leads do not get lost on the way. A clear handover from marketing to sales helps.
- Ask the big customer for introductions or a reference, if the relationship allows it.
- Count new customers and their revenue share in the quarterly table.
Keep the capacity honest. If the big customer takes most of your team's time, you cannot take on new work without a decision about what to postpone.
Protect the relationship while you diversify
Widening the base is not disloyalty. A supplier who is stable is more useful to a big customer than a supplier who depends on it entirely. Still, check the contract for notice periods, minimum volumes and exclusivity before you start talking to similar customers. Where the terms are unclear, ask your lawyer for a short opinion.
Record the dependence as a risk with an owner and a next review date. The format of a one-page list is in a risk register for a small company.
What to do this week
- Make the table of customers for the last twelve months and calculate the top customer's share of revenue and margin.
- Write a limit and one action for the case it is crossed.
- Choose two warning signs and note where you will see them.
- Name one person who updates the numbers each quarter.
- Plan the first two conversations with potential customers outside the biggest one.