How to Reduce Your Business's Dependence on Key Suppliers, Customers, and Employees

The coronavirus has disrupted many types of business relationships. Key customers may be purchasing fewer units, and you may struggle to get the products and services you need through your supply chain. McKinsey explains that successful companies have moved rapidly to assess customer demand, supply availability, and how to do business in a safe environment.

Losing a key supplier, customer, or valued employee can significantly disrupt your business. You have to invest time in order to resolve the issue, and that means fewer hours available to serve your customers.

Companies that rely on a limited number of suppliers and customers are less valuable to a potential buyer. A buyer will often offer a lower purchase price due to the risk of business disruption down the road.

With careful planning, you can address the problem in advance and build a more valuable business. This information will show you how to add more suppliers, diversify your customer base, and to solidify employee relationships.

Planning is the first step.

Supplier Dependence

Create a formal business plan

Review your business operation, speak with your staff, and write a formal business plan each year. This InfoEntrepreneurs article explains that a business plan gives you the ability to anticipate problems ahead of time.

If one supplier provides 50% of your inventory, your staff may point out the risk of losing the supplier. Maybe you’ve already had a supply problem with your biggest supplier, and you struggled to find the inventory items you needed to meet customer demand.

Your plan should include a list of your suppliers, and the dollar amount of purchases from each supplier. Create a similar list of customers, and the dollar amount of sales by customer. Finally, include an organizational chart in your business plan.

Writing a business plan gives you a chance to step back and recognize problems.

If you can’t deliver a product, you can’t serve customers. Add more suppliers to reduce your dependence on any one vendor.

Add more suppliers

Webbiquity points out that losing a key supplier can result in poor customer service and delivery delays which can damage your firm’s reputation over time. Use these strategies to add more suppliers:

  • Use your network: Talk with business peers, your accountant, and your attorney. Ask them if they can refer you to suppliers, or to someone who can help you. Read industry publications, and stay on top of news that impacts your profession.
  • Interview: Once you find potential suppliers, ask them if you can contact some of their current customers. Ask those customers if the supplier consistently delivers quality products on time. Use the responses to make a decision about taking on the new supplier.
  • Negotiate prices and terms: The supplier may ask you about your annual sales, and your business credit history. A supplier wants a reliable source of business from a client that pays invoices quickly.

If you can spread your purchases among a larger group of suppliers, you’re less likely to face a shortage. Fixing a supplier problem speeds up product deliveries, which helps you collect payments faster.

Expanding your customer base can be difficult, but it’s necessary to build a sustainable business.

Diversify your customer base

According to the Harvard Business Review, acquiring a new customer is: “anywhere from five to 25 times more expensive than retaining an existing one.” However, successful companies regularly invest the time and effort needed to constantly find new customers and to diversify their customer base.

Implement these steps to reduce your dependence on a limited number of customers:

Improve the customer experience

Make it easy to find, understand, and buy your products. If you manage an online business, the customer’s journey from finding your website to receiving your product must be clearly stated.

This 2018 study notes that 73% of companies with “above average” customer experience maturity perform better financially than their competitors. Make the buying process easy for your customers, and they’ll keep coming back.

Find more problems to solve

Solve more problems for your existing customers and you’ll build loyalty and differentiate your business. If you sell a product or service that clients love, you can grow your market share by diversifying your product and service offerings.

Food and consumer goods businesses have used this approach for years. If you like Crest toothpaste, for example, is now available in a variety of flavors and types (gel or paste)..

Become the best company in a niche

Focus on a particular niche, and become the preferred business for that niche.

If you specialize in a niche, you can dig deeper to find out what your customers want, and how to meet their needs. Your target market is smaller so you can be more creative in your marketing efforts.

The pet industry is a great example.

As The Balance points out, there are an estimated 180 million dogs and cats in the U.S. Many consumers are willing to spend large amounts on their pets, which is why high-end pet products are in demand. Pet owners are paying top dollar for gourmet foods, pet toys, and treats.

If you can build a reputation and fill a need, you can differentiate yourself from your competitors. Use these tactics to expand your customer base.

Your best employees put in the work to make your business run smoothly. How can you retain great workers?


Solidify employee relationships

Talented employees want to do meaningful work, and you can use automation to reduce the amount of manual, tedious work that your staff must perform. Automate all routine tasks, including accounting, invoicing, and payroll.

These changes will allow employees to work on tasks that require strategic thinking and creativity. Job satisfaction will increase, and you’ll reduce turnover. Put incentive compensation plans in place to reward valuable workers who grow your company over time.

You need a trusted advisor to make these changes and increase the value of your business for a potential sale.

Supplier Reduction Strategy

A Trusted Advisor

If you mishandle your supplier or customer relationships, it can damage your opportunity to sell the business. These decisions are complex, and you’re busy managing day-to-day operations. That’s where the business brokers at Raincatcher come in.

The experts at Raincatcher have advised hundreds of business owners on these tough decisions. Reducing your dependence on key suppliers and customers requires planning, and a business broker can help you with the process.

Will the new supplier provide a quality product on time? How do I market and diversify my customer base without losing key revenue sources? Work with the experts at Raincatcher to answer these questions, so you can create a plan to increase the value of your business.


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