Many years ago, I was in the wearables business. I had a contractor who was providing some imprinting services, until they abruptly stopped making delivery deadlines. I found out they had taken on a new, large, customer, and were devoting all their resources to servicing them.
I made other arrangements, but found out within a year that my former vendor was out of business. They sacrificed all their other customer relationships, then lost their key customer.
Most companies have a “key customer” at some point in their development. Companies are often launched, or expanded, on the strength of a contract, or a relationship, that defines their place in the market. This isn’t necessarily a bad thing, but there is a right way and a wrong way to handle it.
A customer relationship has a shelf life
Sad but true: all relationships, including one with your customers, have a finite lifespan. Business plans change. Contacts move on. Sometimes the customer goes out of business. This can be inconvenient or devastating depending on how well you’ve prepared.
Use the opportunity to scale the business and keep the customers you want
Keep selling. The day you get a customer who represents a “next level” opportunity for your business, you need to start working on landing another one. Make sure that you have contracts in place to assure some degree of stability before investing in expansion, but also know that contracts will only do so much if the customer ever decides to move on.
By the way, if that customer responds negatively to you when they see your sales and marketing efforts or won’t give you good referrals despite being happy with your work, that’s a good sign that you’re in a bad customer relationship – one where they want you to be a captive arm of their business. That means it’s time to double down on the sales and marketing.
Continue to provide the same level of service to your other customers, or better. It’s true that a large customer will often cause a company to revise its minimums, tighten up policies, and cull some customers that no longer seem worthwhile. This is often a good strategy, but the customers you keep should continue to get your best efforts, and the customers you cull should be informed of your decision. A graceful exit will do a lot for your reputation, and perhaps your “business karma.”
Standardize on policies and procedures that are fair to your key customer and to the others. Large customers are treated differently than small ones. But they should still be serviced by your company in a way that’s consistent with internal procedures. While your key account may well influence how you set up those procedures, those procedures should be workable for your business as a whole. Ask yourself if you could implement them for 4-5 customers like the one you’ve got. If not, you shouldn’t implement it for one customer.
Before investing in (or hiring) dedicated assets, have a near-term plan for supporting them with or without the key customer. I used to call on manufacturing facilities, and sometimes found that they had added a section to their production floor, and/or enlarged their facility to meet the needs of a key retailer (I won’t say who, but they’re over in Arkansas). This was sometimes followed by their going out of business, as their customer began to squeeze them on pricing and profitability soon after the investment was made.
Stay in the habit of saying “no” when needed. I believe that key customers test boundaries at significant points in the relationship. If they perceive that they have the upper hand, they will start treating you like an employee (except without the benefits package). It’s important that you enforce your policies, or you will find yourself with uncomfortably low margins and an unstable situation.
Start with the end in mind
One way or the other, your key customer will decline as a percentage of your business in the future. If things go well, this can be because they have stayed the same or even grown with you, but you have expanded your business even more. For example, a $200,000 annual client is half of a $400,000 business, but only 20% of a $1,000,000 business. Still very important, but your business can survive without them.
But if you neglect other customers and make your business revolve around the key customer, it’s inevitable that you’ll eventually lose them, at great cost to your business.