The Dangers of One Big Client
- Andy Ross
- February 4, 2013
My wife and I run a very small design agency. Just the two of us. And we generally work for small clients. But this changed fairly recently.
One day my wife heard that someone at a Great Big Company needed help. Now, this company actually has thousands of employees, in many different countries. They have divisions. And each division includes several large companies. We are talking the big leagues of American commerce.
My wife called them. We got a little project. They liked what we did. And then our wildest dreams came true. We suddenly got an absolute avalanche of work, a project many times larger than anything we had ever previously done. We would be busy for months, billing, billing, and billing. We would make money, generate portfolio pieces, and earn mega prestige. What could be better? We were chuffed.
But, in the end, this created real problems for our little agency. Let me explain. Understanding these problems, and how to deal with them, will really help you.
Let’s say you do a booklet for a small company. You might start, complete, and get paid on the project all within the same month. If this is your typical job, when someone comes and says they want 40 booklets, you get pretty excited. But there are business concerns you need to keep in mind.
Estimating a huge job can be a challenge. You realize 40 booklets probably won’t take 40 times as much work as one booklet. A lot of elements and even some of the copy will be repeated. That will cut down on the total work. But you’re not sure by how much.
Now, if you’re used to small jobs that only take a few days, and you price a job too low, it’s not that big a deal. You finish the job quickly, and if you’re off in your pricing, it’s not that hard to eat the difference. Maybe you estimate it at 4 days, but it takes 5. So, you work extra on the weekend, get onto a new project right away, and the problem is quickly behind you.
But, what if you all of a sudden you are looking at a job that will take several months? Let’s say you think the job will take 4 months, and you price it at that, but instead, it takes 5 and 1/2? That can be a big problem. You could end up working six weeks for free. I’m sure you can imagine it’s tough to keep working on a project, week after week, when you know you’re doing it on the cuff.
And if you have been working on small projects, you might not be used to asking for deposits up front, or negotiating to get paid at project milestones. If you work on a job for a week, then get paid a week after that, cash flow isn’t that big an issue. You send out invoices frequently enough that your cash flow is able to keep up with your bills. But, if you do a project that takes 4 months, what are you going to do for cash in months 3 and 4? And what if you find out, when you’re done, and you send out your biggest invoice ever, that this huge company only pays invoices in 90 days? If you don’t get a deposit up front, you can be in real trouble if you don’t get any money for 7 or 8 months. Just imagine going 8 months without any money coming in, and you’ll see what I mean. At least arrange beforehand to get paid at regular milestones. Business-wise, it’s not great to spend down your personal savings to finance work you’re doing for a huge, profitable company. So, there are real financial challenges to suddenly having a huge project. You’ve got to anticipate them, beware of the pitfalls, and plan way ahead.
Another problem that comes up is workflow. If you work for small clients, you might only need to get one approval to move ahead on a project. A lot of times, you can email a design in the morning, and get approval and be in production that afternoon. It’s not that big a hiccup. But with big clients, pieces frequently have to move through many levels of approval, from several different people. And a lot of times those people are out of town, or in meetings, and things just take longer. With a big client, it might take 7 to 10 days to get an approval. Obviously, this slows everything way down. Including how long you have to wait to be paid. And how long you have to live off your savings.
Work on one project at a time, you can keep track of things. But do 40 projects at once, and workflow gets incredibly confusing. “Did this copy get approved? Did we send these pictures to the client yet? What about these sketches? Which booklet does this photo go with, anyway?” A few days ago, you thought you were organized. Now every time you look at anything you feel lost. You don’t know what goes with what. Learning to organize for big jobs isn’t easy, especially if you’ve been working “seat of your pants” on the little ones. Develop workflow procedures now that can grow when you get a big project.
Your relationships with your regular clients can suffer. You don’t have time to check in with them, to attend to them, and nurse those important relationships. They wonder where you went, if you’re sick or something. This doubt allows other suppliers to move in. Also, when you’re working all the time on a huge job, everyone sort of loses track of you. Part of staying employed is maintaining visibility. When you’re on a big job, that visibility turns to a mirage.
Month by month, your client list shrinks. You feel OK about it, since you have this one huge client, and the work for them is golden. You’re making more money than ever before. But without realizing it, you’re putting your business in a risky position.
If you have 10 regular clients, each one represents about 10% of your business. But if you have only a couple clients, and one is huge, like 70% of your business, you are very vulnerable. With 10 clients, if a relationship collapses, you’re only off about 10% of your income. Which is survivable. But, if your huge 70% relationship sours, you are in real trouble! It’s very hard to make up that loss. It’s much harder to survive a 70% loss, than a 10% loss.
And relationships can collapse, for all sorts of reasons, even if you do an excellent job. A lot of aspects of business relationships are simply out of your hands, and you just can’t control them. Typically, when you work for a big company, you’re actually working for one contact person. That person orders the work; gets things approved, and gets your invoices paid. But that person can be transferred, go to another company, move up the ladder, or even get sick. All of which can kill this relationship with this company. So, if 70% of your business depends on this one person, you’re not really in control of your destiny!
Plus, when you only have one big client, it’s easy for them to push you around. To them, a little design agency is a tiny part of their business. But they know they are keeping you alive. It’s very tempting for a company to abuse this knowledge, and they often do just that. They have a thousand ways, like making you wait longer for payment, making you give big discounts, do more free revisions, etc. And you don’t have much leverage, if any.
Other bad things can happen. The company can go through a downturn, or get bought by another company. In the first scenario, a new CEO can come in, and slash every budget in sight. Including the one you get paid from. Or when the company is bought, or there’s a merger, or reorganization, a lot of times your contact person is replaced. And the replacement has another agency they work with, and you’re out in the cold.
Obviously in any business, nobody can afford to turn down a big job, with a big company. You want the prestige of working for them, and you sure do need the money. But, you have to be aware of the difficulties this can create for your company, and plan ahead.
Andy Ross works at StunningCreative.net
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