Business School - The Customer Who Is Slowly Killing Your Company

BUSINESS SCHOOL  ·  OPERATOR LESSONS  ·  WEEK 6 OF 12

Start here if one logo in your client list is more than a quarter of your book.

For Entrepreneurs , landing a big customer looks like proper proof the company is working. The logo is on the wall. The order is large. The salesperson says the account is strategic. Then the customer pays late, asks for a discount, and still expects the next load on time. You adjust the floor price, you override the stop-supply flag, and you keep loading because the monthly P&L spreadsheet needs the invoice. That is not a win. That is one logo slowly eating the contribution you calculated in Week 1.

Client concentration is simple to measure, however its impact can be hard to admit. One customer, or a small set of customers, makes more than a third of revenue, more than a third of debtors, or more than a third of contribution. When that happens without guardrails, their cash cycle becomes your cash cycle. Their price pressure becomes your margin. Their decision to pause becomes your business problem.

This week we continue our business journey with CleanLine still the made-up compony we use for illustration. This week Cleanline named the chain that was too large.

A worked example: CleanLine names the chain

After the sales system in Week 5, CleanLine could quote at the floor price without the founder needing to be on every call. The regional chain was still the largest name on the list. It was 31 percent of invoiced sales over the last three months. It was 38 percent of the debtors book. It paid on 52 days even after the terms conversation. The workshops that reordered every fortnight made up the rest and paid closer to 30 days.

They ran the numbers from Week 1 on the chain’s last ten invoices. Average price received was 158.00 a drum against a floor price of 165.00. Contribution after goods, delivery, the cost of waiting, and returns was thin. The workshops at 165.00 and 30 days produced more cash per drum than the  large chain customer at a lower price and with longer payment terms. CleanLine told the chain the next load would be at the floor price, with the deposit from Week 2, or it would not go. The chain reduced volume. Two other workshops increased. Cash improved before revenue did.

Three concentration realities this market will not negotiate away

1. A logo is not a customer until the money matches the price

The name on the purchase order, while welcome, is not the measure of success for your business. The measure is what payment you receive, when you receive it, and what is left after the costs from Week 1. A chain that takes 30% of invoices and returns 15 percent of contribution is not your biggest customer. It is your biggest distraction. The workshops that pay the floor price and pay on time are the business foundation.

2. Their terms become your terms if you keep loading

Week 2 set stop-supply at day 37. If you override it for the large account because you are afraid to lose the volume, you have agreed to their cycle. A 12-person firm cannot fund a 60-day payment cycle for a customer that is already a third of the book. Either the price moves up to cover the delay, or the volume moves down until the share is manageable, or you stop.

3. Replacing volume takes longer than stopping it

You cannot cut a large account on a Friday and replace the cash on Monday. The plan should be to name the account, set a date, and use the period before that date to push sales growth with the smaller accounts that already pay. CleanLine did not fire the chain on day one. They stopped the discount, required the deposit, and filled the gap with workshops that were already on the list from Week 5. The volume dip was real. The cash dip was smaller.

The rule: measure, then renegotiate or walk

Write this on the same page as the pipeline from Week 5.

•   Measure three key data every month: share of invoiced sales by client, share of debtors, share of contribution after the Week 1 costs. If any single client one is over 25%, the account is concentrated.

•   Renegotiate once. Floor price. Deposit or shorter terms. Stop-supply still applies. Put the change in writing. Give a date.

•   If they do not move by the date, walk. Stop quoting. Stop loading. Do not add a second conversation that ends in another exception.

•   Do not replace them with another single logo of the same size. Replace them with several accounts that each sit under 15 percent.

Five steps you can run this week

1. Name the account that is over a quarter

Open the last three months of invoices. Add the total sale. Sort by customer. Circle the one that is largest. Write the three shares next to the name: sales, debtors, contribution. If you cannot do the contribution share in an hour, use sales and debtors for now and come back to contribution.

2. Run the Week 1 number on their last ten invoices

Average price received. Fully loaded cost. Contribution. Compare it to a smaller account that pays the floor and pays closer to terms. If the large account produces less cash per unit, the logo is costing you.

3. Write the one change you will ask for

Floor price, or deposit, or shorter terms. One change. Not three. Tell them the date it starts. Tell them what happens if it does not. The message is short. The date is real.

4. List the accounts that can take volume before that date

Use the pipeline from Week 5. Which workshops or smaller buyers can take another load this month at the floor? Call them first. Do not wait for the large account to say no before you start.

5. Put the walk date on the calendar

If the change is not in place by that date, the next quote does not go out and the next load does not leave. Tell the person who releases loads. Tell the person who sends quotes. You do not need a meeting on the day. You need the flag.

The concentration scorecard

One row per account that is over 15 percent. Update it monthly.

What to measure next month

•   Largest account as a share of sales, debtors, and contribution. Target: under 25% on all three.

•   Whether the renegotiation date was kept. If the date passed and the load still went, the rule did not hold.

•   Volume taken by the smaller accounts you named. If that number did not rise, you only threatened.

A single November target: one account over 25 percent either moved onto the floor and shorter terms, or stopped receiving loads.

The mistake that looks like progress

Calling the large account strategic and then giving it the exception every month. Or cutting it without a plan and watching cash fall because nothing else was ready. Both avoid the number. A logo on the wall is not progress. A share under a quarter, at the floor, on terms you can survive, is progress.

If you only do one thing

Tonight, add last quarter’s invoices by customer. Circle the largest. Write the percentage next to the name. If it is over 25 percent, that is the account. Do not draft a diversification plan. Name it, and write the one change you will ask for this week.