Putting all your eggs in one basket is never a good strategy. It’s always best to diversify most aspects of your business, especially your customer base.
Most of us have been there before. We score a big customer and tout it as a big win, which is a significant milestone for your business. Landing a whale can completely change your business. But not always for the better.
How having a large customer can negatively impact your business.
For instance, having a customer who’s more than 5% to 8% of revenue is a significant risk for any MSP. Large customers usually are a more considerable percentage of tickets and overall costs than their percentage of revenue. This reduces the overall gross margin and diminishes resources for other customers to pay the right price. Even if the customer is profitable, when one customer uses too many of your team’s resources — it puts you in a difficult position.
Also, if you decide to sell your business down the road, a large customer in your portfolio will reduce your valuation significantly. A single customer keeping your business afloat is a risky investment for investors. What if the customer leaves after acquisition? This alone is a major concern for buyers, which is why they’re more likely to purchase businesses with diverse customer bases.
Want a pro tip? Diversify your customers, and you won’t have to worry about scrambling to replace revenue.
What should you do if you lose your biggest customer?
But what happens if you don’t heed my advice and end up losing your biggest customer? While you’re in a tough spot, you have options. Take out your profit and loss statement (P&L) and review all your costs. Some words of advice: It’s time to step up and be a leader. Please make the necessary decisions (no matter how hard they may be) to stay profitable. Then, double down on your go-to-market (GTM) strategy. The only way to reduce risk to your customer base after losing a large customer is to add new sweet spot customers until the overall percentage of revenue is reduced. Rethink your business. How do you plan on acquiring new business? Are you investing in social media marketing? Are you joining your local business networking group? Think about what you will do differently to make up for lost revenue and develop new business relationships. Pledge to never rely on a single customer for the bulk of your revenue again. I’ll say this: Your future self will appreciate what you did.
The best way to avoid putting your eggs in one basket is by reviewing your revenue regularly to assess where the bulk of your revenue comes from. If it’s all from one source, rethink your strategy and find where you can improve your revenue streams.