Everyone we know agrees that the famous 80/20 Rule or some variation of it applies to the customer base of most companies. The rule states that most of your revenue comes from just a few of your customers. More importantly, most of your profits come from a small portion of your customers.
We don’t know whether this is a good situation for your company or not– it depends on the business you are in and the strategy you pursue. What we do know is that your awareness of where your business is concentrated and how you manage that concentration is vital to your future.
Make sure you understand the economics of your customer base. Is profit really proportional to revenue? Are there some customers you’d be better off without? These questions can be answered, usually with careful application of activity-based-costing techniques.
When you figure that out, develop a clear plan to protect and grow your most important customer accounts. As Henry Ford once said, “There’s nothing wrong with putting your eggs in one basket. Just watch that basket!”
