We have all been warned not to ‘put all your eggs in one basket’ at some point in our lives. A playful warning to simply remind us not to rest all of your opportunity and success in one place! Never truer when it comes to customers for your business and making sure your entire business doesn’t depend on one or two key customers. Today’s post will be covering the risk in depending on one or two key customers, how to address these risks but also to remind you of the benefits in diversifying your customer base.
Why You Should Diversify With Your Business
Diversifying not only gives your business security but will grow your reputation and increase revenue, profits and cash enabling you to grow your business and invest in people, technology and assets.
When your business depends on too few a customer it can leave your business vulnerable. Any changes in those key customers, needs or priorities (such as price cuts or change in supplier), can lead to a huge change in your profits. If your business is dependent on too few sources of income, it can leave you financially exposed if cash dries up. Diversifying your customer base offers your business financial stability. Furthermore, in having only a few key customers it gives your business limited negotiation power. It’s harder to negotiate when you are worried your customer might go elsewhere. This is the same for contractual disputes and processes which can delay cash and take up management time.
Finally, if your business becomes too focused on one client you could start limiting your product/service to focus on their needs and not be diversifying for what others want limiting innovation.
So how do you address these risks?
This is a two-pronged approach. The first is looking into the relationship with your key existing customers. Build those relationships long-term, with mutually beneficial agreements. Craft these relationships, finding out what their objectives are and then helping them achieve them, which will retain their business, and in solving their problems, it will make them more reliant on you. Ensure you meet their process requirements – their sign-off, payment procedures. As an extra tip, monitor their payment history and credit rating, and watch for changes to keep you ahead of the curve. Knowing something may be about to change, it allows you time to plan for it.
The second is diversifying your customer pool, through finding and attracting new customers. If you have succeeded in the above with your existing customers, then this would be a good time to start looking for new ones. Ask for references, testimonials, referrals from your big customers and use their reputation and contacts to secure outside work. Showcasing relevant accreditations associated with quality, such as ISO 9001 helps contribute to social proof; whether it’s case studies, testimonials, reviews or referrals. It’s important to find out what your market wants and offer unique, quality products/services.
Understand your unique selling proposition and focus on what makes you different from your competitors. Excellent Customer Service, responsiveness, personalised interactions and going that extra mile contributes hugely to your customer satisfaction. However make sure this is evidenced, otherwise you could lose credibility.
Invest in Your Marketing
Once the above is in place, consider where potential customers will find you, develop a marketing plan, invest in sales and research market prices. Building a strong online presence is key for success in today’s world and therefore investing in marketing (website, content, social media, search engine optimisation, relevant directories etc) is important. Further tips to find new customers could be looking into leveraging existing contacts or even partnering with other businesses with a similar customer base. Competitive pricing always drives new customers. However, take care to not squeeze the margins too much – you need to know what the effects will be on your business profits before doing so.
After reading the above you may be thinking as a business owner ‘what should I do now to make sure I haven’t all my eggs in one basket?’. Our advice to business owners now would be to firstly decide what level or risk is acceptable to you. 20%? 50%? Then work out where your key customers lie in relation to this and have a plan to diversify your customer base, as well as keeping an eye on what your competition is doing.
Furthermore, the idea of diversifying applies not only to customers but also Markets, key employees, suppliers, products and technology. Overall, aim to develop your brand, and maintain a strong cash flow so you can cover the loss of a key customer.
Is your business too dependent on one or two customers? Book your free 1-2-1 meeting with Graham here to discuss your options and how to diversify your customer base to decrease the risk within your business.