Customer Diversification Increases Value and Protects Your Business

Protecting your business for the long-term is a major priority. It drives business owners to constantly strive for new ways to save, invest, and forge client relationships that help fortify the company. 

Unfortunately, there are elements of the market that are out of control. While we can’t control every factor that could affect our clients, the economy, or our industry, we can come up with strategies that can get businesses through the lean times and help them come out successful on the other side. One of those strategies is customer diversification.

Could Losing a Client Mean Losing Your Business?

For a moment, let’s pretend that your business produces high-quality fishing lures. You’ve been in business for a while, and you’ve found that your lures are particularly alluring to a species of trout that are endemic to a local river. In fact, the trout business is doing so well that you’ve basically tapered down your customer list to a few businesses in the area that focus on selling gear to trout fishing tourists who don’t have the right gear to handle this special species of pretend pescatarian delights. 

Unfortunately, the business bubble suddenly bursts when the last little trout is tugged out of the water, leaving behind a babbling brook of broken dreams. As the outdoors shops that specialized in trout fishing begin to close their doors, the orders for your lures stop coming in. One-by-one, you lose clients and revenue until the day you decide it costs more to keep manufacturing than you’re making in profit. 

While this story is a bit far-fetched, it’s the reality for businesses that neglect customer diversification. Too often, we find a niche that we’re comfortable in, focusing all of our time and efforts into selling to a particular industry or audience. 

But what happens when the demand suddenly starts to plummet? What if that industry becomes defunct, leading to a domino effect defeat for your own company? It’s scary to think about, but relying too heavily on one particular type of customer creates a too narrow foundation to survive a sudden market shift. 

Customer Diversification Protects Your Business

Many small businesses hang their hats on strong, long-lasting relationships with clients. While that’s not a bad thing in general, it could spell disaster if that core list of clients suddenly begins to disrupt the steady flow of sales that you are counting on to keep your doors open. Just as in the trout fishing example, anything could happen that causes a ripple across the industry, eventually reaching your business. 

When considering whether or not you need to diversify your customer base, ask yourself these questions:

1. If we lost one major client, what would the overall impact be on our sales? What percentage of loss would we experience?
2. If we lost an entire industry sector of clients, what percentage of loss would we experience?
3. Are there emerging competitors in the area that are offering tempting deals for switching?
4. Does the client have a decent level of customer and product diversity that would protect your business if one of their locations or products goes under?
5. What are the terms of your client contracts? If any are approaching their end date, what are you offering to convince them to continue working with your business?
6. If the business was to sell, is the personal relationship between the client and the business owner significant enough that new ownership would threaten their status as your customer?
7. Is your business’s value going to be called into question due to the chance of customer loss, or can you prove that client list fluctuations would be manageable?
8. Do you rely on a particular client to the point that your margins are dangerously slim to keep them interested in your business?

If a harrowing trend emerges, in which one or more of these scenarios means a major loss, customer diversification is a good place to start securing the future of your company. 

Another good place to start is speaking with a business and transition coach. With expertise and experience in both the successful running and selling of companies, Catalyst Group ECR can help you find the right path to long-term satisfaction with your business’s future. Get in touch, and let’s get started!