Business
Quiz: does your business depend too much on a single customer?
A big customer is great until it is not. See the signs of dependence and ways to reduce the risk.
✓ Reviewed by HumaneviInterpretation
Short answer: a business depends too much on a single customer when losing that customer would threaten the company's survival. A common rule of thumb is to look at what share of revenue comes from the largest customer: the larger the share, the greater the risk. This quiz helps assess the situation. It is educational material and not financial advice.
How to use it
Answer "yes" or "no" to each question, thinking of the last 12 months.
Questions
- Does your largest customer account for more than a third of your revenue?
- Do the top three together account for most of your sales?
- If your largest customer left tomorrow, would you struggle to pay fixed costs for more than two or three months?
- Is the contract with them short, informal or terminable without notice?
- Do they set prices, deadlines or payment terms in a way that reduces your margin?
- Do you adapt products or processes only for them?
- Are your time and team concentrated on this customer, leaving little room to prospect for new ones?
- Do they often pay late?
- Do you know how long it would take to replace that revenue?
- Do you have a cash reserve to get through the loss of a major customer?
How to interpret
- Few "yes" answers: dependence seems low, but it is worth monitoring.
- Between 3 and 6 "yes": there is a relevant risk. Think about a diversification plan.
- 7 or more "yes": the risk is high. Prioritize reducing the dependence.
Strategies to reduce the risk
- Diversify the portfolio. Set aside fixed time for prospecting, even when work is full.
- Cap the share. Set a target for the maximum revenue per customer.
- Improve contracts. Longer terms, termination fees and advance notice.
- Create offers for other segments based on what you already do well.
- Build a cash reserve.
- Keep a close relationship with the large customer, to anticipate changes.
- Document processes, so you can serve new customers faster.
Counterpoints
Large customers provide predictability and scale, and it is not always possible or desirable to reduce them quickly. What matters is knowing the risk and preparing alternatives.