Working it out
- Sales by customer. From your accounting software, for the last twelve months.
- Largest customer. Their sales divided by total sales.
- Largest three. Add their sales and divide by total sales.
- What leaving would cost. Multiply their sales by your gross margin.
An illustration
The figures are invented to show the arithmetic. They are not what any business should expect.
| Total sales, last twelve months | R2 400 000 |
| Largest customer | R720 000 |
| Share of the largest customer | 30% |
| Largest three customers | R1 320 000 |
| Share of the largest three | 55% |
If the largest customer left and costs stayed the same, gross profit would fall by R288 000 a year (R720 000 at a 40% margin).
For comparison, a year of net profit at R14 000 a month is R168 000.
Read it against your own situation
- The period before. Is the share rising or falling?
- Your plan. Did you plan to rely on them?
- Your contract. How long does it run, and how much notice can they give?
What a change could be revealing
| The signal | It could be revealing | Check | You could |
|---|---|---|---|
| One customer is a large share | They may set your price and your hours, and losing them would hit costs and cash at once | Contract length, notice period and how they pay | Agree a longer contract, and start work to add other customers |
| The share is rising | The big customer may be growing while others shrink, or selling may have slipped while you deliver | Sales by customer over twelve months | Set aside regular time for finding new customers |
| The share is falling | You may be winning new customers, or the big customer may be buying less | Whether their sales in Rands are falling | Ask them how their needs are changing |
| The top three are most of your sales | You may have a small customer base | How many customers bought in the last three months | List the customers most like your best ones and approach them |
| Most of your income is from one client, on their premises and hours | It could raise the deemed employee question | Your contract and how the work is done | Read the deemed employee rule and ask your accountant |
Try it
Run the sales by customer report for the last twelve months. It takes about ten minutes.
Questions people ask
What share is too much?
There is no set figure. Ask what would happen to your costs and cash if that customer left tomorrow, and how long it would take to replace them.
Does it matter if the customer is loyal?
Loyalty helps, but contracts end and buyers change. What matters is how you would cope.