Will That Big Client Make You Money, Or Cost You Money? A giant customer can be highly profitable or cost you your business. Have you considered all the angles?

By Ed Hatton

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur South Africa, an international franchise of Entrepreneur Media.

Bigstock

"How do I get into the big corporates or Government?" Business owners visualise huge sales and profits by becoming a supplier to a giant, and that is often the case. For a big organisation with billions to spend, a trivial expenditure to them may be a large fortune to you.

Do not let the number of zeros dazzle you, riches are not guaranteed; many entrepreneurs have suffered losses or businesses collapse from such dealings.

You must understand the motivations of managers of large organisations, and the risks they face.

They are KPI-driven and risk serious damage to their careers if something goes badly wrong. Compared to these issues, your profitability, work hours and ego are minor considerations.

You may believe that you only have to perform in terms of your agreement, but in reality, you need to make your contacts look good. Aim for a zero fail rate; deliveries that are late, faulty or incorrect may cause a disproportionate explosion because that means your contact has let someone down. If you are smart, you can help your contacts get a reputation for superior internal service.

Understand the risks that big customers pose to your business

There are risks in any unequal buyer/seller relationship. The biggest risk is if the giant stops buying. Large customers can be extremely demanding; they see you as an extension of their business and can be intolerant of your need to service other customers.

Many small suppliers will be familiar with a peremptory summons to an immediate meeting and occasional rudeness. A supply contract inevitably favours the big guy, and this means pricing and other terms of trade are vital. You must protect your ability to make a reasonable margin even if circumstances like inflation, exchange rates or sector wage agreements change.

Large organisations care about meeting their budgets, not about your profitability, and many suppliers have failed because they were bound to supply goods at an unsustainable price. Managers move around, and if your champion is promoted, the replacement manager may prefer their favourite suppliers, so out you go.

Broaden your range of contacts in the organisation to avoid this risk. Large organisations are huge bureaucracies; decisions may take time and payments may be delayed, especially if your paperwork is not perfect.

There are opportunities — but evaluate them carefully

The major opportunity is significant growth. They will buy if you supply a product or service that suits their needs and budget at service levels that make the managers look good.

It is entirely possible to make your company almost indispensable by solving problems and offering them innovative new ways of exceeding their KPIs at reduced cost. There are opportunities to supply other parts of the giant, as well as their supply chains. Be careful with growth.

Your primary contact will be used to your full attention and if he or she senses that this is no longer happening because you have grown, they can seek alternative suppliers. Never let growth reduce your customer service level.

A very large and prestigious customer gives your company credibility, allows you to attract the brightest staff, makes selling to other giants easier and gives you funds to develop new markets and new products.

Is it worth it?

Is it worth the big money? Yes, if you can manage the risks, chief of which is becoming too dependent on one customer. However, dealing with the big gorillas is not the same as having a more balanced supplier/buyer relationship. It works if you use your ability to be nimble and flexible to solve their problems.

It helps if you are innovative and can use your creativity to respond rapidly in ways that big corporations cannot. It works if you can give very personal service, even if that means you, the owner, are the primary interface. By doing these things you can become an indispensable cog in a huge machine.

Ed Hatton

Owner: The Marketing Director

Ed Hatton is the owner of The Marketing Director and has consulted to and mentored SMBs in strategy, marketing and sales for almost 20 years. He co-authored an entrepreneurship textbook and is passionate about helping entrepreneurs to succeed.

Related Topics

Business Ideas

55 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Women Entrepreneur™

How Portia Mngomezulu Launched Her Cosmetics Business With No Money

A great product range backed by an ambitious vision and a determination to get the basics right is helping Portia Mngomezulu to conquer the highly competitive beauty industry

Business News

Warren Buffett's Annual Letter Reveals the Secrets and Lessons Behind $930 Billion Berkshire Hathaway

Buffett wrote about the company's unchanging investment rule and how his sister became "very rich."

Buying / Investing in Business

Here's Where Venture Capitalists Are Putting Their Money in 2024 — and What Startups Must Do to Attract Funding

Here are the top five industries and projects that are currently leading the market and the steps you need to take to attract investors effectively.

Entrepreneurs

26 Of The Richest People in South Africa

Here are 26 of South Africa's richest people, but how did they achieve this level of wealth? Find out here.

Leadership

The Top 5 Strategies for Overcoming Naysayers in Business

Here's how you can handle naysayers with resilience and poise.