Small Businesses Urged Not to Put All their Eggs in One Basket

Small firms that rely on one or two big clients for the bulk of their revenue are placing themselves at risk by putting all their eggs in one basket, say business experts.

Business analysts have warned that a worrying number of small firms — typically service companies in the business to business sector — are relying on income from one or two main clients.

“Linking the success of your business to someone else's so strongly is fraught with risk — especially in this economic environment,” says Amanda Walker, managing director of Bauxite Marketing and expert contributor to the Marketing Donut website, the one-stop marketing advice resource for small businesses.

In good times, the attraction of one main customer for a small firm is clear — it can mean predictable cash-flow, secure profits and provide a strong platform for growth. At the same time, clients often like being looked after by a supplier that devotes most of their time and attention to them.

“Clients love to feel important to a business as they believe it will get them the lion's share of your attention and the best value for their money. So it can be an attractive selling proposition,” says Walker.

But for the small firm relying on one or two main clients, the threat is that those clients could go elsewhere for a better deal or may even be floundering themselves.

For firms that have all their eggs in one basket, it’s important to manage the risk and look for other sources of revenue, says Walker.

“This is particularly tough for small businesses as they don't necessarily have the resources to give the same level of attention to current and new business,” she says. “SMEs should keep their current business strong by incentivising current customers to stay — through discounts for the longer term — and by offering minimum commitment contracts.”

Looking for new business has to part of the strategy, she adds. “At the same time small firms should look at taking on a new business development manager on a freelance or commission basis so that they are building up a list of contacts and targets without a major staffing commitment.”