10 WAYS TO BOOST YOUR COMPANY’S VALUE: Practice #1: Reduce Customer Concentration

10 WAYS TO BOOST YOUR COMPANY’S VALUE: Practice #1:  Reduce Customer Concentration

One of the first practices to boost your company value when sales aren’t growing is to look closely at your customer concentration (CC) levels.

Customer concentration warning signs occur when any business has sales or accounts receivable in excess of 15 percent (of total sales) from a single customer.

While in many cases 15 percent seems a low risk, many financial institutions, including banks, investment funds and even the SBA, will question you in order to understand the trend and go-forward risk if you should lose that customer at some point.  High CC businesses risk higher interest rates, and a potentially lower corporate valuation. A valuation downgrade or discount can affect your future expansion or sale plans more than you might expect, and who needs that these days, right?

One of the easier ways to reduce high CC, obviously, is to spread annual sales across a wider customer base. Try to incentivize your sales team to add new accounts, not just to increase sales from older ones. And while trade shows are the perennial stalwart for increasing accounts, be sure to develop a webinar and social networking channel strategy to expand your geographic coverage. I have clients who are expanding customer accounts internationally using webinars and social networking tools.

In the event you simply can’t find a way to reduce high CC, try to create as many layers of protection between you and the key customer as possible by signing multiple term and product contracts with staggered expiration dates. This, in effect, spreads your sales across a wider group of buyers inside the account such that no one buyer can pull the plug with the stroke of a pen or phone call. This strategy can help protect larger accounts from walking away by breaking them up into smaller contract pieces. Make sense?