When One Customer Is Too Big a Share of the Business

Many small businesses grow on the back of one great relationship. A customer who pays on time, sends steady work and has been with you for years is worth protecting. The trouble starts when that customer becomes so large a share of revenue that losing them, or even a change in how they buy, would put the whole business in danger.

Concentration tends to creep up slowly. The big customer keeps asking for more, saying yes is easy, and before long a lot of your people, equipment and cash flow are built around one account. It rarely feels like a problem until something changes on their end: new ownership, a new purchasing manager, a budget cut, or a competitor offering a lower price.

Some signs you may be too dependent on one customer:

• You know the number and it makes you nervous. If you have ever done the math on what happens if they leave, and did not like the answer, that is worth listening to.
• They set your terms more than you do. Pricing, payment timing and scope are decided by what they will accept, and you feel you cannot push back.
• Your schedule bends around them. Other customers wait, or get less attention, whenever the big account calls.
• The relationship runs through one person on each side. Often you and one contact at their company. If either of you moves on, the connection gets thin very quickly.
• You have stopped looking for new work. There has not been much need, so the habits of selling and marketing have faded.

Practical steps to spread the risk:

• Look at revenue by customer, honestly. Pull a simple report of the past year and see what share each customer represents. Knowing the actual figure is the starting point for every other decision.
• Strengthen the relationship you have. Build more than one point of contact on both sides, keep service steady, and make sure your agreements are clearly written down. Have an attorney review any contract terms that matter.
• Set a modest, steady goal for new customers. Not a big push, just a regular habit of finding and serving a few more good accounts so no single one carries the business.
• Watch your cash cushion. If a large share of income comes from one place, consider keeping more in reserve and pay attention to how quickly that customer pays.
• Avoid building fixed costs around one account. Before hiring or buying equipment just for the big customer, ask what you would do with it if they left.

Concentration also matters if you ever plan to sell or hand off the business. Buyers and successors tend to look closely at how dependent the business is on any one customer, and on the owner's personal relationships with them. Spreading that risk now can make the business steadier to run today and easier to transition later.

This is not about pushing away a good customer. It is about making sure the business would still stand if that customer's needs changed.

This article offers general information, not legal, tax, investment or valuation advice. For contract or financial questions specific to your business, please talk with the appropriate licensed professional.