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When Your Biggest Customers Want More, Maybe Say ‘No’

April 28, 2017
Can a big customer become too much of a good thing? Yes, if you break "The 10%  Rule."

How many times have you heard- or said- something like, “Volume covers all sins”? Or, similarly, “If we could just produce and sell more, then so many of our problems will go away.”

The relentless pursuit of big volume has been touted as the way forward for so many manufacturers.

It is wrapped-up in consultant-speak such as “achieving scale,” “maximizing efficiency,” “leveraging core competencies” and the like. And while these are valuable notions for some, they are not the panacea for most.

The reason is that pursuing volume often leads to the rise of all-too-powerful customers; who ultimately are able to dictate the terms of the relationship and how your business operates.

In our book The Customer Trap, Timothy Wilkinson and myself detailed what we call “The 10% Rule.”

Simply stated it is this:

A company that has a single customer, which is more than 10% of its total business, puts the company at big risk.

This stems from our research that found companies who allow >10% customers are more likely to experience wide fluctuations in their profits and market share.

Putting a lot of eggs in one -- or even a few baskets -- can prove wonderful so long as those big customers stay profitable and loyal.

However, the minute the customer leaves or threatens to do so unless a lower price point is met can be catastrophic.

How many of us remember when a major account announced they were taking their business somewhere else unless they got a dramatic price reduction?

Such moments can cause grave harm; or even threaten the entire future of a company.

Interestingly, management accounting recognizes this risk as well; and, requires a company to report and disclose the presence of their big customers.

The language under the SFAS 131 Requirements follows:

"The standard requires use of the management approach; that is, segment reporting depends on the firm's internal organization. The standard defines an operating segment as a firm component

  1. that engages in business activities generating revenues and incurring expenses
  2. whose operating results are regularly reviewed by the enterprise's chief operating decision maker to allocate resources and assess performance
  3. for which discrete financial information is available"

Speaking specifically to “The 10% Rule,” the requirement continues:

"Reportable segments are operating segments that report any of:

  • revenues (including intersegment revenues) of at least 10% of total revenues (including intersegment revenues) of all reported operating segments"

Something to think about the next time your biggest customer wants to place an even larger order… Despite the temptation, it might be better to just "say no."

About the Author

Andrew R. Thomas | Bestselling business author & associate professor of marketing and international business

Andrew R. Thomas is Associate Professor of Marketing and International Business at the University of Akron; and, a bestselling author/editor of 25 books.

His newest work is The Canal of Panama and Globalization: Growth and Challenges in the 21st Century (2022).

His book The Distribution Trap: Keeping Your Innovations from Becoming Commodities was awarded the Berry-American Marketing Association Prize for the Best Marketing Book of 2010.

Andrew is founding editor-in-chief of the Journal of Transportation Security; contributing writer at Industry Week; and, a regularly featured analyst for media outlets around the world such as BBC, CNBC, and Wall Street Journal.

A successful global entrepreneur, Dr. Thomas was a principal in the first firm to ever export motor vehicles from China. He has traveled to and conducted business in 120 countries on all seven continents.

His personal website is www.andrewrthomas.us

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