What to Do When a Big Client Starts Spending Less

Large accounts can play an important role in the success of small and midsize businesses. The steady revenue helps to hire employees, purchase equipment, expand operations, or simply plan further ahead. Many businesses have one or two customers that make up a significant portion of their revenue. While there is nothing inherently wrong with this, relying too heavily on only one or two customers also creates risk.

A contract may get smaller. Orders may slow down. A longtime customer could change suppliers, cut its own budget, or bring work in-house. Even a strong relationship can't guarantee that today's level of business will continue indefinitely.

When a major account starts pulling back, it's helpful to understand the impact early and give your business more options to keep things running smoothly.

How Much Do You Depend on Your Largest Customers?

Start with the numbers.

If you haven't already done so, or it's been a while, take a look at how much of your annual revenue comes from your largest customers. Then consider what would happen if one of those customers reduced its business by 10%, 25%, or even 50%.

For example, say your largest customer represents 30% of annual revenue. A 25% reduction in that customer's business would reduce your company's total revenue by 7.5%. Knowing that number makes it much easier to determine what expenses may need to change or how much new business you would need to bring in.

Would you still be able to cover payroll and other regular expenses? Would you have enough cash to operate while replacing that revenue?

Running through a few scenarios can show you where your business is most vulnerable before a slowdown becomes a bigger problem.

Revenue isn't the only number worth reviewing. Take a look at how profitable your largest accounts actually are. A customer that represents a large share of sales may also require dedicated employees, special equipment, frequent deliveries, or other expenses.

Understanding both the revenue and the costs tied to that account gives you a clearer picture of what a reduction would actually mean for your business.

Understand What's Changing

A decrease in orders doesn't always mean you're losing the account.

Their business may be slowing down. They may be changing how they purchase, adjusting inventory, or dealing with budget pressures of their own.

Talk with the customer and try to understand the reason for the change to help you determine whether the decline is temporary or something you should expect to continue.

A thoughtful conversation may also uncover other ways you can work together. Perhaps their needs have changed, but your business can provide another product or service that is useful to them.

Look for Revenue You Can Build on

Are smaller customers buying only one of several products or services you offer? Are there customers you've worked with in the past who may have new needs? Could you serve a nearby market or industry without making a major investment?

Several smaller customers may provide more stability than replacing one large account with another.

Be Careful About Chasing Revenue

Losing part of a major contract can create pressure to replace the revenue quickly. While it's natural to look for ways to make up the difference, moving too quickly can sometimes make the situation worse. A business may take on work that isn't particularly profitable, agree to unfavorable payment terms, or invest in equipment and employees before knowing whether the new business will last. New revenue only helps when the numbers make sense.

Before taking on a new customer or contract, consider the profit you'll actually earn, how quickly you'll be paid, whether you'll need additional employees or equipment, and how much cash you'll need upfront to do the work.

Take a Fresh Look at Expenses

A change in revenue is also a good reason to review expenses.

Start by looking for costs tied directly to the business you've lost or expect to lose. Maybe you no longer need the same amount of overtime, inventory, subcontracted work, or shipping. Some expenses may adjust naturally as sales decline.

The sooner you understand what has changed on both sides of the equation, the easier it is to make thoughtful decisions instead of reacting later.

Protect Your Cash Flow

A shrinking contract can create cash flow pressure before it has a significant impact on the business overall.

You still have payroll, loan payments, utilities, insurance, and other expenses to cover while you work to replace lost revenue.

Knowing how much cash you have available and how long it can support the business gives you time to make better decisions.

This is also where having a banking relationship before you need additional financing can be valuable. A line of credit or other source of working capital may help bridge a temporary gap, but borrowing should be part of a plan for adjusting to the revenue change, not a substitute for one.

Don't Wait for a Customer to Pull Back

The best time to lessen your dependence on a large customer is while that relationship is still strong. Continue developing smaller accounts, reconnecting with past customers, and looking for new opportunities even when your largest accounts are doing well.

You can't control every decision your customers make. But you can control how dependent your business becomes on any one of them. Periodically ask what would happen if your largest account suddenly became smaller.

A major customer pulling back can be difficult, but recognizing the risk early gives you more time and more choices.

At First Citizens National Bank, we work with businesses across Mid-Ohio as they manage cash flow, plan for growth, and adjust when conditions change. If your business is preparing for a change in revenue, our team can help you look at your options and determine the best path forward for your business.