I’ve spoken with a number of Managed Service Provider (MSP) owners recently who have shared with me that a large proportion of their businesses revenue comes from a single large client.
It’s easy to understand how this happens. While most MSP’s would prefer to have a mixture of clients to spread their risk, many MSP’s find one of their clients growing exponentially in size, the MSP being taken along for the ride with that client – supporting the client at every stage of their growth.
But it’s equally easy to see why an MSP owner would wake up one day and feel uneasy about the fact that without realising it was happening, suddenly 20% or more of their income is being generated from a single client.
The phrase “All your eggs in one basket” springs to mind.
20%+ income from a single very large client?
From the MSP’s perspective, if you’re reliant on a single client for 20%+ of your revenue (and I’ve spoken with MSP’s who have shared that they have 40%, 70% or in one cases, 90% of their revenue from a single client) then you may find the client putting unreasonable demands on your time – and generosity. After all, wouldn’t your business would struggle to survive without their benevolent custom?
Deriving a large chunk of revenue from a single client also puts the MSP at a disadvantage when it comes to chasing overdue payments, and indeed, every other aspect of the relationship. It’s a brave soul who rocks the boat when they can’t afford to lose a client.
But if you’re in a situation where 20% or more of your income comes from a single client, while there is no sense in panicking, taking immediate steps to prepare you to deal with any issues should be a priority for you.
Here’s 3 important steps you can use to begin managing a very large client straight away.
Keep lines of communication open
Rapidly growing businesses tend to add new levels of management rapidly too. While your relationship with the Senior management team might be rock solid, what if someone new is hired who takes on responsibility for signing off your work – and they don’t know you from any other IT company in the Yellow Pages? Your track record and relationship with senior management suddenly means a lot less than it did before.
Likewise, what if a new Financial Director takes over and decides to change payment terms from 30 days to 90 days. Will this have an effect on your income?
Keep your ear to the ground at your client. By making sure you are continuously communicating with your client – putting yourself in the middle of their operations, being aware of what is happening in their business, understanding (and often having input to) any changes in their business, you can make sure to head off any challenges as you see them. Regularly meeting with the client in person is key, with telephone calls to key client staff happening on a regular basis too.
Set Expectations
There’s an old phrase I’m fond of “Lack of planning on your part doesn’t constitute an emergency on mine”. But how many of us feel like we can’t say no to our largest client when they telephone us on a Sunday to ask us to drop everything for a project on Monday morning?
By keeping the channels of communication open, and letting your client know what is happening in your business as well as understanding what is happening in theirs, you can set expectations on what you’re capable and not capable of delivering for them.
The client may make assumptions over how you can help them. If you are involved in the conversation early on, you can help ensure those assumptions are realistic and fair to both parties.
Get Paid on Time
As your client grows and your reliance on them for large chunks of your income grows too, late payments go from being an irritation to a cold-sweat inducing nightmare that can cause you horrible sleepless nights.
Ensure that your relationship with the clients account department is strong, open and honest.
Make sure the key players in the accounts department at your client know who you are and why it’s important you are paid on time, every time.
Understand changing terms and conditions of payment to suppliers – as accounts team staff change, so do terms of payment. Sadly, as your client grows bigger, their attitude towards paying you on time may become worse.
And if payments suddenly start becoming late, don’t ignore the issue and continue working regardless. Raise the issue with Senior Management at your client and look to find a solution sooner rather than later.
Conclusion
It goes without saying that any business that relies on a single client for a large chunk of their revenue is inherently at risk so if your MSP business derives more than 20% of its income from a single client, then while there is no need for panic, its worth being aware of how this can affect your relationship with your client.
Take steps to manage that relationship better, starting now. Spend more time visiting the client in person. Ensure lines of communication are kept open at all levels of the clients business. Set expectations effectively so you are no put upon unfairly. And above all, make sure you are paid on time, every time.
Then, once you’re happy you’re managing that large client effectively – start to spread your risk by seeking out new clients to add to your books. Don’t stick your head in the sand and hope that the worst – your biggest client leaving you – will never happen. It probably won’t, but how would you feel if it did?
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photo credit: Tom Raftery via photopin cc
photo credit: Mukumbura via photopin cc
