Praying on One Customer
When your business is fawning over one customer, significantly more than any other customer, you have a risky situation. You pray every day that this customer will continue to love you, work with you, order more from you. You bow low to most requests and even cut your margins to show your loyalty.
Then one day, this best customer slows down their orders or worse, stops ordering. Now your terrific company, the machine you have built around servicing this customer, more than other customers, has a gap. It's called Customer Concentration.
So, to avoid finding yourself praying on one customer, do a monthly test - create a quick schedule of sales by customer then add a column showing percentage of sales that each customer contributes to total sales.
The test is whether any one customer represents over 20% of your total sales. If so, then start marketing and find another new customer. Spread the love, decrease your risk, and increase your sales potential.
The good news is that using this test you will have a new goal with some sound business stability rationale - add more business. The benefit is two-fold - more revenue which is good and less customer concentration which is excellent.
Now, it is typical that your top 10 to 20 customers will account for 80% of your total sales. That is fairly normal so no concerns, it feeds the 80:20 rule where most of your revenue comes from 20% of your customers and yet you maintain the other 80% for a variety of reasons. More on this in a future post.
Run this report every month and you will find your entrepreneurial imagination racing to think of ways to increase sales, add customers, and grow your business.