Should I Fire My Largest Customer?

Posted: Updated:

Everyone who has ever run a business understands the concept of having a customer who's more important than the rest. But a very large customer may not always be the best thing for your company.

Often we find that a business owner/manager hasn't performed adequate analysis to see if their biggest customer is really producing the outcomes they desire. They may look at the top line and see that their largest client is responsible for a huge chunk of total revenue. What they don’t realize is that single customer may be eating up a disproportionate share of resources and thus not having the impact on the bottom line as assumed.

It’s also not healthy when a firm has a customer so big that they are economically dependent on them. When this happens, we even see the customer starting to dictate policies, procedures and prices. They monopolize resources and hinder the ability of a company to grow and evolve. Soon your business becomes a mere extension of their business.

The corporate world is littered with people who built a great company, but depended on a single client for 60 or 70 percent of their revenues. When that went away … the firm floundered.

Leaders should strive to have a customer base that is large and diverse enough that the sudden loss of any single customer would not threaten their continued viability as a going concern. Always preserve your independence to the point you have the freedom to “fire” your biggest customer if the relationship is no longer mutually beneficial.

It’s easy to become bedazzled by a big client. You enjoy the prestige of partnering with a high-profile company, and the numbers on your gross revenue spreadsheets are eye-popping.

But when is the last time you performed a gross profit analysis, looking at not only sources of revenue, but how much you are spending to serve them? Explore beyond the topline numbers to reveal the true cost of having them as a customer. Are there other initiatives you’ve been wanting to explore, but your team is so monopolized there isn’t time pursue them?

There’s nothing wrong with having a big client who generates profits for your business. But a prudent business leader will look at the longer term, and manage clients so as best to perpetuate the sustainability of your own organization, including your overarching mission and the welfare of your employees.

You want every relationship between your company and its customers to be win-win for both parties.

The example of one of our clients best illustrates this point. During the Great Recession, they lost a major customer and as a result a big portion of their revenue. But they were surprised to find that their profitability actually increased! That’s because they had lost sight of how much it was costing the business to serve that one client. By being forced to explore other opportunities, they were able to make up the difference – and more.

This is why it’s prudent to run an analysis from time to time on your customers. Take a look at not just the benefits, but also the risks of having a large customer.

If the overall profitability of a customer is not commensurate with the level of services they are demanding, or if you find yourself unable to adequately meet other customers’ needs, or if you find yourself economically dependent on the leadership of another company, you might want to consider severing or altering that relationship.

It’s better to fire your biggest customer than become beholden to them, which may stifle your own ability to grow. Because when that happens, for all intents and purposes, they own your company as well as their own.

They may squeeze your profit margins so they become razor thin, and/or demand additional services that further squeeze your profitability. You find yourself in a vicious cycle of trading dollars, but not realizing an adequate rate of return on your investment.

In every healthy business relationship, it must be mutually beneficial for both parties. Just make sure your well-intended desire to hang on to that big customer does not get in the way of other growth objectives of your business!

Tom Sponsel is managing partner of Sponsel CPA Group.

  • Perspectives

    • Greg Ballard is the former mayor of Indianapolis and a co-founder and current board member of Indy Women in Tech.

      Shining a Spotlight on Women in Tech

      I still get a thrill driving through the gates of our legendary Indianapolis Motor Speedway and I will be lucky enough to do so for an entire week soon. This week, the best women golfers in the world will once again display their talents at Brickyard Crossing Golf Course in the Indy Women in Tech Championship. However, the tournament is much more than an athletic competition. It is an opportunity to support a solution to a critical economic and workforce development issue.

    More

Subscribe

Name:
Company Name:
Email:
Confirm Email:
HTML
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections
INPower
Subscribe
Unsubscribe

Events



  • Most Popular Stories

    • (Rendering of phase two of the Riverfront Fort Wayne project provided by the city of Fort Wayne.)

      Fort Wayne Riverfront Contract Pulled

      A proposed $2.5 million contract for the design work for the next two phases of the Riverfront Fort Wayne project has been pulled. Our partners at WPTA-TV report the Fort Wayne City Council withdrew the contract, which was set to go to Philadelphia-based DAVID RUBIN Land Collective.

    • Economic Development Announcement Set For Gary

      An economic development announcement is set for Thursday in northwest Indiana. Governor Eric Holcomb and Gary Mayor Karen Freeman-Wilson will join executives from Pittsburgh-based United States Steel Corp. (NYSE: X) for the event.

    • The building will be converted to the Aloft Indianapolis Downtown

      Historic Downtown Indy Building to Become Hotel

      A hotel owner and operator with offices in Columbus and New York has acquired a historic building in downtown Indianapolis. Everwood Hospitality Partners says it has invested $5 million to acquire the former Stockyards Bank Building and plans to invest an additional $13 million to transform the building into a 128-room hotel. The 12-story building, which was built in 1898, will become the Aloft Indianapolis Downtown. Renovation work is expected to begin in the...

    • U.S. Steel 'Renaissance' Spurs $750M Gary Works Investment

      Pittsburgh-based U.S. Steel Corp. (NYSE: X) has announced a $750 million investment in its Gary Works operations. The company says the funds are part of a $2 billion asset revitalization effort that will take place over the next five years. Last year, U.S. Steel detailed plans that involved pumping $35 million into Gary Works, which followed the $23 million first phase of its Hot Strip Mill Restoration Plan. The latest investment, the Indiana Economic Development Corp. says...

    • Fort Wayne Radio Icon Butcher Passes Away

      A fixture in the Fort Wayne radio scene has passed away. Charly Butcher spent more than 30 years in Fort Wayne radio with a successful morning show on WMEE-FM and, most recently, as host of "Fort Wayne's Morning News" on WOWO radio. Butcher was 61. Butcher was part of WMEE's popular "Those Two Guys In The Morning" show with Tony Richards in the 1980s. He joined WOWO in the mid-2000s as host of "Fort Wayne's Morning News With Charly Butcher."