Is It Time to Diversify? When Big Clients Get Dangerous

It’s a good to have a big client who consistently orders from your print business. They help your business generate lots of revenue as they place repeat orders, making you feel like your business is set for years to come. But is it? Research shows that relying on just a few big clients for your revenue could be dangerous. Print businesses need client diversity, just like businesses in other industries.

Why is the lack of client diversity dangerous?

A lack of client diversity can pose threats to your print business in the long term. There are several reasons for this. Read on to find out!

1. High Risk

Relying on one or just a few big clients for most of your revenue means that you have more to lose if they change their minds. While their orders have a large positive impact on your business, their choices can also negatively impact it. What if they start going to a competitor instead, or if they close down? What if they delay their payments? A Financial Post article on the same topic expresses this well: “If your business relies on a single client, you’re one decision away from disaster.”

2. Concentrated Power

When power is concentrated in the hands of your biggest clients, it’s harder for you to negotiate fairly. You may find yourself losing out. For example, you may be forced to push your prices lower in order to keep these big clients, and in doing so, you can also lose out on profits.

3. Industry Risk

Maybe you have several small clients who are from one industry. While this is less risky than having a few big clients monopolize your business, it still has its dangers. What if a major event impacts their entire industry? For example, if most of your clients are real estate agents, a recession could cause many of them to go out of business and therefore stop printing with you.

4. Single Product Orders

Many clients tend to reorder the same one or two products from their printer. If your biggest clients like to place single product orders, your revenue could end up being based almost entirely on your ability to produce one or two products. When workflow problems occur, they end up impacting your major revenue stream. For example, if the press that you use to print small marketing collateral on breaks down, would you make enough on large format printing to still sustain your shop?

Tip: Find a wholesale trade printer like SinaLite who can print a large variety of products for you, just in case that happens!

5. Distorted Business Reputation

If you print for only a certain type of client, you may eventually be known as the printer who only prints for that type of client. For example, a nonprofit group may not feel comfortable working with a commercial printer who appears to only take orders from big corporations.

Is it time to diversify?

So how do you know when you’re lacking in client diversity? Or in more business-oriented terms, how do you know you have a high customer concentration? Weebly eCommerce quotes: “If any single customer accounts for ten percent or more of your revenue or if your largest five customers account for 25 percent or more of revenue, you have a high customer concentration.”

While this indicates that your client base is not very diverse, it is not yet a high risk situation. So when does it start getting risky?

According to Shelley Hall, Principal of Catalytic Management and a renowned author, “an alarm should go off” if less than 30 percent of your clients account for 50 percent of your business.

CFO Edge, a leading CFO service provider in California, recommends the following:

“It’s generally advisable that no single customer accounts for more than 20 percent of a company’s total revenue. This figure is probably a little bit high — ideally, no customer should account for even 10-15 percent of your total revenue if you want to really be safe from customer concentration risk… Similarly, no small cluster of clients (such as two or three) should account for more than 40-50 percent of your revenue.”

So if your client base is looking dangerously concentrated, it may well be time to diversify.

Diversify Your Client Case

Client diversity helps minimize risk for your print business by keeping your customer concentration in check. Big print clients are great, but don’t let them run your business. Stay in control by diversifying and reaching out to clients in different industries.

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