With the ever-growing number of risks to businesses and business owners, especially during crappy times like Covid, it’s absolutely crucial to seek preventative measures in order to protect your company and safeguard its value.
Unfortunately, it’s quite a common theme to find that client-based businesses tend to suffer the most when seeking a sense of comfort in their sources of revenue – especially based on the number of clients they have and the industry that they are involved in.
I often advise my clients to measure many things on a daily and even monthly basis – especially in the smooth operation of a well-oiled machine – but, emphasis certainly needs to be placed on client (and industry) dependency.
So Many Eggs, Only One Basket
Most business owners measure a lot of the right things such as sales, overheads, how much is sitting in the bank and their finances from a tax-perspective; but often neglect to take into consideration the levels of client dependency in their business.
As a business coach, I always make sure to bring awareness to the measurement of revenue their clients produce as a percentage of the total business, ensuring that they divide their clients and determine how much each one brings in.
This is extremely important, as you should avoid (at all costs) a client that is too big in your business, in case things go south for whatever reason.
By depending on one major client, you run a massive risk that could put you out of work, leave you having to take (or make) salary cuts, or worse: retrench staff.
People will often build their office, infrastructure and technology based on what the biggest clients look like and the overheads of the business often go hand-in-hand with that.
In creating a solid defense against those risks, I advise producing something that looks like a pie chart every single month and plot out what percentage revenue each client gives your company on a monthly basis.
The golden rule of thumb in this situation is to ensure that no client provides more than 10% of your total revenue. Let’s say, for argument’s sake, that you have 10 clients and each of them provide 10% of the revenue for your business; you’ll be at a lower risk, because if one of those clients have to leave – it’s not the end of the world. Sure, it certainly isn’t great, but it’s not the worst thing that could happen.
But, as soon as you’re receiving more than 20% of your revenues from one client, the risk increases as you depend more on that source (they literally account for a fifth of your business, if not more); consider 20% as an alert and 50% as trouble.
Avoid putting all of your eggs in one basket and creating an unpredictable reliance on one client; what you want to be doing is growing your current client-base to produce more revenues by increasing what they spend on you, from say R10k to R20k, while keeping them below the 20% threshold.
Not Just The Revenue Basket, But The Industry Basket, Too
Another basket that you’ll find being weaved in a similar situation is the industry basket; the revenue basket is the dependency on revenues from clients, but attention needs to be paid to the industry basket, as well.
What industry is your business dependent on? If you’ve accumulated a strong list of clients within one industry or market, you run the risk of the same threats to the well-being of your company.
By relying on clients that might seem unwavering in an industry, such as the hotel industry, or airline industry; you’re setting yourself up for an uncomfortable surprise if the proverbial shit hits the fan. Covid KO’d a lot of industries and those businesses that were reliant on certain industries took a subsequent beating.
If the airline industry all of a sudden goes bankrupt, or the hotel industry begins hemorrhaging and the bulk of your clients are part of that industry – your business will suffer indefinitely.
Covid has taught us that it’s vital to pick about 5-10 different industries and spread your client-base among them, so that if anything were to happen to any of these industries you wouldn’t be affected as much, because you’ve diversified and spread yourself out.
So by taking careful consideration of the two baskets and the measurements that should be taken when spreading your eggs into each one, you’ll ensure proper protection of your business.
There is one basket that I will recommend putting all of your eggs into:
And that’s in choosing the right business coach for you.
Don’t spread those eggs out when dealing with advice, coaching, mentoring, development:
Throw them all into one and you can depend on me to get the right job done.
Who you gonna call? Coach Spillly! (*insert Ghostbusters melody, here)
+2783 253 3339