Let’s say the worst happens and you lose your biggest client.
Can your business survive?
If your answer is “no” or “I’m not sure,” it’s time to make pre-emptive changes NOW before it’s too late – in case the worst does happen.
I’ll share a secret with you: Even if it doesn’t happen, knowing you’ll be alright if it does will help you charge forward with more confidence, generating a boost well-worth the effort.
This leads me to a key rule of thumb I share with my own business coaching clients: You should never have one client responsible for more than 20% of your revenue.
Check out the video below for a better understanding of this concept and how to dilute the influence of any clients that may have too much control over your revenue:
Why is it problematic to have one client account for over 20% of your revenue?
It probably goes without saying but losing over 20% of your revenue in one fell swoop can be pretty scary and stressful. Additionally, by counting so heavily on one individual client, the balance of power between you and the client can be thrown off. If you absolutely depend on them, you increase the control they have in the relationship – something they may try to take advantage of. Clients in this position will often flex their power to demand more and test the limits of what you’re willing to give.
Revenue vs. profit
One of my favorite quotes is, “Revenue is vanity, profit is sanity.” So often as business owners, we can be blinded by big revenue numbers. But the really powerful number is profit. When you take an honest look at your client portfolio, you’ll find that while a customer may account for a large chunk of your revenue, they don’t necessarily account for an equivalent share of the profits.
Just because a certain client generates the most revenue for your business, does not mean they are also your most profitable client. It’s important to do the math here and really see your clients clearly. If this large client does exert their extra influence to demand more from the relationship, the time and resources you’re investing may not generate the same profit that you would see from a less demanding and more ideal client for your business.
What is the best way for you to help your target market?
This is a vital question to answer because it will help you serve your clients better and more effectively. Additionally, when you can answer this question clearly, you’re able to identify clients that fit within that framework. These would be considered “ideal clients” because they are the clients you can serve best, creating a win-win situation for both you and the client.
What if you already have a client that accounts for over 20% of your revenue? What should you do?
Don’t worry, I’m not advising that you just drop your largest client. Rather, the goal here should be to dilute them.
If you do the assessment above about who you serve best and determine that your large client is indeed an ideal client, that’s great! It sounds like you need to find more just like them to dilute their influence over your bottom line. (Easier said than done, I know. But at least you know who you’re looking for.)
If this large client is not an ideal client, that’s also okay. You can still benefit from the revenue they generate, but the goal should be to dilute their influence by diversifying and finding more clients that do meet your ideal criteria. Eventually, once you replace their revenue, you can either work with the client to make adjustments and create a win-win situation for you both, or pass them on to someone else who can better serve their needs as they see them.
So there you have it! Keep a close eye on your client portfolio and make sure no one client accounts for more than 20% of your revenue. If it happens, dilute their influence and make sure you’re only serving clients where it’s a win-win for both parties.
Want help assessing your client portfolio or finding new clients to dilute the power of one of your current clients? I’m here to help! Feel free to apply for one of my complimentary diagnostic sessions and we can review this concept and uncover anything else that might be holding your business back.