HIGH CLIENT DEPENDANCE
From:Jun Hao Chen Accounting Analyst
Memo of Client Dependence
DearManager, Marketing Department,
Ourfirm has been performing very well in terms of annually increasedincome over the years, since 1990. This has shown a good signal forall of the employees in the company. Being a business analyst fromthe Department of Finance, I have realised one major problem that isgoing to affect the firm negatively if no action will take place.
Lastyear the company generated two million dollars and is expected togain more than $50000 in the coming year. However, I realise thatover 50% of the company`s revenue is obtained from Harbor FightDevelopment Company. Despite the fact, that she is our loyalcustomer, this also shows that we have high client dependence.Although the company experiences a good performance, there are noenough customers to sustain our business. This will negativelyaffect the company in the long run. The company aims at increasingits production by 20% by next year. This will require a large marketfor the provision of services.
However,this overdependence of our firm to one client has several risks thatmay lead to the closure of the company. In case Harbor FightDevelopment Company closes, which is our main customer, we have nooption other than closing the company. This is because there will beno other loyal customer who will take our services. The company overthe years has experienced exemplary performance in the production ofservices. It has been one of the most rapidly rising business and isexpected to be among the top revenue generating companies in thecountry. Since the company was formed, it has never obtained a loss,which is an indication of good performance.
Ihave analysed that the company needs to look for other customers incase it needs to get more revenue. Obtaining of more customers willraise the income of the company from 3.5% to 6% that is what thecompany aims at achieving by the next year. The company needs to takethe time to talk with other customers. Other business associates canbe a significant source of the business market. The employees shouldshare what they have and know about the market and the customers.Operational IT systems can make it easier to analyse and sharerelevant information such as customers purchasing behaviour andpreferences. Carrying out research on the new product will help toknow customers reaction to the new product.
Differentplans should be done because the market conditions keep on changing.The focus of this company should be winning of new customers and alsobuilding a profitable relationship and maximising growth with them.Existing business relationships often have a high potential forprofit and can also provide reliable cash flow. This business needsto be alert to the new opportunities. Relying solely on one customerhas a lot of risks. Diversification of customers helps in spreadingthese risks. It is important not to assume that our current successmeans that we will automatically be able to take advantages of theseopportunities. We need to plan in every move that we make.
Thegraph of behaviour over time is shown below
Inconclusion, the more we succeed, the more competitors notice andreaction to what we are doing. A market leading offer one day mightnot be the best a few months later. Superficially loyal customers canfind alternative suppliers who offer a better deal. As products age,sales growth and services get squeezed. Understanding, where ourproducts are in their lifecycles, can help us work out how tomaximise overall profitability. We need to invest in innovation tobuild a stream of new profitable services to market.