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Have eggs, need more baskets?
You've fallen into the one-client trap
By Jenny C. McCune •
Bankrate.com
 Beware
the one-client trap:
One particular customer becomes your cash cow.
You spend all your time caring for and feeding this customer --
who, after all, is your top revenue producer. Then, one day, your
cash cow dries up -- the customer no longer requires your services.
You end up with a potentially deadly pause in revenues and a scramble
to find new customers.
It's easy to fall into the one-client trap.
"It happens to the best of them," says Tracy Schneider, principal
of TLS
Marketing, a marketing consulting firm in Seattle. "Not that
they're tricked into it. Most people are aware that they should
do something; they just don't have the time."
The one-client trap most often ensnares startups
in the service sector. In a typical scenario, a former employee
leaps into business by securing a big contract from the old employer,
or the employer's dissatisfied customers.
Business consultant Jennifer White saw it befall
a client, an established fruit wholesaler in Cincinnati. The fruit
seller landed Sam's Club as an account. When Sam's Club topped 80
percent of the fruit wholesaler's business, the giant retailer demanded
that its supplier prune its pricing. The fruit seller had no choice
but to comply.
Fortunately, while the one-client syndrome can
be deadly, there are ways companies can protect themselves. Here's
how:
That's what Jennifer White's client did. It
slowly added clients and cut back on its business with Sam's Club.
While the distributor still accounts for about 50 percent of the
fruit wholesaler's business, that's still a big improvement over
80 percent. Some small companies may be nervous about spending time
marketing when they're already busy. "They fear they'll get too
much work to handle, but that's seldom the case," says Chris Coleman,
president of Folio Z Inc., a $4 million, 30-employee technology
marketing firm in Atlanta. Better to turn away work than to become
too reliant on one customer, Coleman argues.
- Keep
an eye on your revenue base
No customer should account for more business
than your company can afford to lose. While the percentage varies,
a good rule of thumb is to have at least three major accounts and
have no customer make up more than a third of your sales, says Schneider.
Having some cash reserves is a good idea for
any company. It will come in handy when the unexpected happens;
for example, a loss of a major customer.
Jennifer White of the JWC
Group, Kansas City, Mo., and the author of Work Less, Make
More (John Wiley & Sons, 1999), recommends devoting a day
or at least part of a day each week to marketing. That can include
everything from attending a chamber of commerce meeting to mailing
out promotional materials to new customers.
- Map
out your marketing strategy at least twice a year
Maybe you won't get it all done, but having
a plan will give you the discipline to market on a regular basis
rather than just sitting back and letting the checks come in from
one favored client. Pick a time when you're least busy -- perhaps
between Christmas and New Year's or sometime during the summer months.
If you don't the time to market, find someone
who can do it for you, says Schneider. Maybe you can't afford a
full-time professional, but marketing consultants can be hired on
a project basis, she says. Always having an ongoing marketing project
can ensure that your company is never stricken with "one-client-itis."
- Keep
marketing to current customers
June
Cline, president of The Court Jester's Club, a speaking and
training company based in Kennesaw, Ga., often works as a subcontractor
for other training companies. "All of a sudden one of them stopped
booking me," Cline says. "I found out the person I was working with
had a new job and the new contact didn't know anything about me."
Keep yourself in the forefront of your current customers' minds,
Cline says. Drop them a line or visit their office. That way you
stay abreast of personnel changes that can slow work to a trickle
plus your customer is more likely to think of you, instead of a
competitor.
It's like the farmer who plants a variety of
produce that will ripen at different times. He'll never go hungry,
and neither will you if your business has a diversified list of
prospects -- some which may ripen immediately while others will
take more time before you can harvest them.
- Put
opt-out clauses in the contract
Ask big clients to sign a contract that will
give you sufficient advance warning should they choose to take their
business elsewhere, advises book author Eric Tyson, co-author of
Small Business for Dummies (IDG Books Worldwide, 1998).
- Practice
'divide and conquer'
Within that big company may be several different
departments you can sell to. That way, even if one division axes
your company, you'll still be getting from other parts of the corporations.
When the worst does happen and a lucrative client
leaves your fold, don't panic, says Chris Coleman. Very often a
small business owner will slash prices in an attempt to keep its
cash cow. "It's a dead giveaway that you're under the control of
the client," Coleman says. "My observation: It doesn't work -- or
if it does, it won't work for long."
When faced with a defecting customer, a small
business owner is better off writing off that customer and starting
to look for other clients to replace the lost business, Coleman
says. Sometimes a small business need look no further than the ex-client's
competitors to find a new, lucrative substitute.
Above all, "Stay optimistic," Tyson says. "If
one big client disappears, odds are that you'll be able to soon
replace it."
Jenny C. McCune is a contributing
editor based in Montana
To comment on this story, please e-mail the
Bankrate.com
editors
-- Posted: Feb. 14, 2000
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