Insights

When is a client too big?

It’s so hard to say ‘no’ when a large client keeps giving us more and more work, especially in the early days of a start-up agency. Over-dependence on any one client (or two clients) can be the worst mistake your agency ever makes. I recently met the MD of a sizeable agency and their biggest client was over 70% of the revenue. He could tell from the look on my face I was not impressed. He then said “but they’ve been a client for over 10 years” as if that somehow guaranteed they’d be a client for another 10 years. In this situation the past doesn’t predict the future.

Why is it dangerous to be over-dependent on a client?

1. Typically we under-price and continue to do so for fear of losing that client.
2. ‘Fear’ mentioned above is not the basis for a strong and mutually beneficial relationship.
3. We become ‘an employee’ rather than an independent adviser.
4. We are more likely to seek safe solutions rather than standout solutions for our client.
5. When you lose a large client it can result in redundancies, lost mojo and even insolvency.

My advice, and that of leading M&A corporate finance advisers, is to have no client bigger than 15% and ideally around 10-12%. If you do have a large client on which you are over-dependent then here are three suggestions.

1. Ensure there’s a decent contract in place ideally with minimum 3 months notice, better still 4 or 6 months notice.
2. Build your ‘war-chest’ for that rainy day – it’s a matter of when rather than whether. As Nigel Bogle of BBH said ‘an agency is only 3 phone calls away from disaster’ (Maybe now it’s one phone call away from disaster?)
3. Turn up the new business drive and fill the pipeline with qualified prospects.

I’ve studied what the most successful (and least successful) agencies do, added to my 20 years agency career at director level plus 15 years consulting over 110 agencies. In my workshops I share the gold nuggets I’ve learnt to transform your agency’s profitability and productivity. Can I help take your agency to the next level?