DON'T GET CRUSHED BY THIS COMMON BUSINESS MISTAKE...
Could you afford to lose 60% of your business in a single day?
This is a question a friend of mine has to answer right now. For many years, my friend’s company has done business with a large supermarket chain, which shall remain nameless. His company did maintenance on the freezers for all the store locations in our area. This supermarket accounted for nearly 60% of his business. Imagine his horror when the supermarket’s management team came in last year and decided they would bring freezer maintenance in-house instead of outsourcing it. It was a cost-cutting effort that lowered my friend’s business by more than half.
The Trap of Big Clients
Landing a major client sounds like a dream come true. Rather than taking care of a bunch of different clients, you just have to take care of one client who, in turn, pays almost all your bills. Let me tell you from experience, this dream is actually a living nightmare. Having massive clients is such a risk, and it decreases the value of your company if you ever think about selling.
Agreeing to take on a client who becomes most of your business is a huge mistake — one many businesses keep making. I have a lot of friends who run businesses. Almost all of them have one large client who dominates more than 30% of their business. In fact, I just learned that one of my own clients has a massive customer who is 80% of their business! Taking on clients of this size is just asking for trouble. When they cancel — and they always do — it will send your company into a tailspin. And in the meantime, your biggest client is also your biggest bully.
Worse Than High School Bullies
When big companies do business with smaller firms, they’ll inevitably bully you because they sense you’re desperate to keep them. Who wouldn’t be desperate to keep someone who brings in over 50% of their business? So bigger companies will regularly miss deadlines, cancel meetings last minute, ignore your systems, and be slow to pay. It doesn’t matter how difficult they are because these companies know if they say, “Jump,” you’ll say, “How high?” This won’t happen right away, of course. But things erode with time, and these big clients just get worse and worse.
I’ve even had big companies hire away my key employees! In the past, my biggest client tried to buy my business. When I turned them down, they canceled our contract and hired four of my six engineers instead. That left me in a serious rough spot for a while, and I was forced to reassess my relationship with bigger clients.
Protect Yourself From Your Biggest Clients
After my terrible experiences working with big clients, I’ve made a few rules:
• The 8% Rule — No client can be bigger than 8% of my total business. I have a formula that helps me keep things in check. This means I’ve had to turn down big offers before because that potential client would have become too much of my business.
• Staffing Contract Clause — After losing four of my technicians, our contracts now have a clause that states if a client hires away any of my employees, that client will pay me 50% of the employee’s salary. Likewise, if I hire any of my client’s employees, I would pay the client 50% of that employee’s salary. It’s a protection that goes both ways.
• ACH Draft — Automated clearing house (ACH) payments are when you authorize a biller to pull funds directly from your account to make payments. This is basically what you do with Netflix or HBO Max each month. Using ACH protects us against big companies who are chronically, painfully late on their payments. Being late on payments like this is basically taking advantage of our business, stripping value from us that we could be giving to other clients. If we let one company take advantage of us like that, we’re cheating our other clients.
• Credit Card Fees — Sometimes, bigger clients will want to pay with a credit card so they can get points from their credit card company. But our fees are based on cash. We don’t inflate our fees. Everyone is subject to the same fees, which are based on calculations of what it takes to run our business. If a company wants to pay with a credit card, we’re going to charge them a bit more because of the costs associated with credit cards.
From my experiences
My advice is never to let one client dominate your business. It’s asking for trouble. If you’re going to have one massive, dominant client, you need to protect yourself, because they can wipe you out. You have to have policies for dealing with them, and you have to be willing to stick to these. Telling someone no is okay. It’s worse to let them continue to wring you out like a washrag, and that’s exactly what they’ll do. Dominant clients will keep squeezing and squeezing until there’s nothing left and they leave you in the dust. Don’t give them that opportunity. You’re worth more than that.