Category A · Demand · Scenario 2
Loss of a Key Customer
One customer represents a large share of your sales, and that relationship is at risk. Losing them affects revenue, profit, cash flow and sometimes the debts they still owe you. The bigger the customer's share of your business, the more serious the risk.
Trigger
A major customer reduces activity, delays renewal or indicates they may leave.
First move
Quantify the revenue, margin and money-owed exposure, then build a realistic plan to retain or replace them.
Immediate first response
Calculate exactly how much revenue, gross profit and owed money is at risk, then arrange a senior-level conversation with the customer.
First 24 hours
- Confirm the outstanding balance owed by this customer and its age
- Calculate the customer's share of revenue and gross profit
- Arrange a meeting between your most senior person and theirs
- Hold back on extending further credit until the position is clearer
Next 7 days
- Understand the real reason for the change — ask directly
- Prepare a retention proposal that is commercially sensible, not desperate
- Model the business with and without this customer in a cash forecast
- Identify costs that are specific to servicing this customer
- List realistic replacement customers and what it would take to win them
Next 30 days
- Execute the retention or orderly exit plan
- Right-size costs dedicated to this customer if they are leaving
- Launch a targeted new-business plan to reduce concentration
- Set a policy limit on how much revenue any one customer can represent
- Review credit terms and security arrangements for major customers
Typical causes
- Customer is changing supplier, insourcing or consolidating suppliers
- Service, quality or delivery problems
- Customer under financial pressure themselves
- Change of decision-maker or ownership at the customer
- Contract renewal or tender approaching
Early warning signs
- Order volumes falling or becoming irregular
- Customer paying later than usual
- Fewer meetings, slower responses, new procurement contacts
- Requests for price reductions or a tender process
- Rumours of the customer talking to competitors
Trigger indicators
- Any customer above 15–20% of revenue reducing orders by more than 20%
- Receivables from the customer more than 30 days beyond normal terms
- Formal notice of tender, review or non-renewal
Financial implications
- Revenue and gross profit fall immediately once orders stop
- Money owed may become harder to collect if the relationship sours
- Stock or work in progress made for this customer may be stranded
- Lender covenants and facility limits may be affected
Questions management should ask
- What share of our revenue and gross profit does this customer represent?
- How much do they owe us today, and how overdue is it?
- Why are they really reducing activity?
- What would it cost us to keep them — and is it worth it?
- Which costs disappear if they leave, and which stay?
- How long would it realistically take to replace their contribution?
Common mistakes
- Offering big price cuts before understanding the real problem
- Continuing to extend credit to a customer in difficulty
- Assuming all their associated costs will disappear when they leave
- Failing to tell the bank early if a major customer is lost