When you have one customer whose business represents more than 25% of your revenue, then you have a “gorilla” customer. If you don’t have one now, you will likely get one at some point. If you are already in this position, then you’re probably feeling vulnerable. What happens if you lose this customer?
Don’t be afraid of the gorilla customer – you certainly shouldn’t refuse additional work they’re offering. It’s likely that your business with them has grown because you’ve served them well and have earned the business.
But be wary of this situation. If this customer’s business grows too much larger as a percentage of your total revenue, then the probability that your business could fail if they depart becomes much higher. If the revenue percentage reaches 35%, research shows that about half the firms never survive the loss of that customer. It may not happen immediately, but the failed companies often identify this loss as the trigger for their demise.
Prepare for a potential gorilla customer loss by:
- Understanding why a large customer typically stops working with you – most often it’s not due to your work. The 3 top reasons these customers depart are:
- There’s a change in your contact(s) and the new folks don’t care about your relationship;
- Your customer is acquired by or merged with another large entity and they no longer need you;
- The customer decides to consolidate suppliers or move the work in house.
- Identifying how your company is vulnerable:
- You find that you have drifted from a sound profit-driven company to an improperly client-driven firm whose large customer is really running your business;
- You’re more consumed keeping your huge customer happy than tenaciously pursuing new business;
- You’ve stopped offering uncommon “against the trend” advice to your key customer because you are afraid to lose them, even though this helped you originally earn their business;
- The valuation for your firm, if you ever choose to sell it, would be subject to a significant penalty.
- Being ready if they say good-bye – be honest with yourself and recognize that you are likely to lose this customer at some point. When significant income disappears, expenses must shrink quickly:
- When your contacts change, personally deliver the message that you don’t WANT to lose their business, but don’t want them to feel trapped by an inherited decision. Then proceed to ask them about their impressions of what you do well and what you can improve;
- Strengthen your strategic position with other key customers so they find it difficult to replace you;
- Build two contingency plans, one for a mild revenue reduction and one for a major one. Identify specific manpower reduction & other cost reductions. It is too emotional in the moment when you lose a gorilla customer to think clearly so plan now and you can refine your plan if needed. The single biggest mistake principals make in such situations is to resist cutting staff quickly enough;
- Beware of adding debt and aggressively seek to reduce the amount you have.
If a key customer departs, keep your employees up to date. They realize the news is bad but they still want to know rather than being surprised. Wouldn’t you? Losing a gorilla customer is painful but it can be an important step in eventually moving your business to the next level.
Are you managing your business to avoid losing a gorilla customer?
How are you preparing for the possible loss of a key customer?
