One Customer or Many Customers?

Photo by Tim van der Kuip on Unsplash

Hanifmr.com - For many start-ups and self-employed, the first thing to do is to find customers in the first place. Over time, however, there are differences in the approach and customer structure.

In this article, I am looking into the question of whether you should only have one / a few large customers, or whether it is better to have many smaller customers.

I will go into the advantages and disadvantages and give practical tips.

In the end, there is also a survey.

One Customer or Many Customers? - Tips for Founders

If you've just started a business, for most self-employed people and freelancers, it's just important to get customers. At that time, you don't think about whether you should have a few large or many small customers.

But that changes over time. You achieve better utilization and you can even turn down a less interesting job now and then.

But then the question of what your customer base should look like in the future also becomes important. Do you prefer to work with a few large customers or do you rely on many small customers?

In the following, I will go into the advantages and disadvantages of these two variants.

Advantages and Disadvantages of a Few Large Customers

Anyone who works as a self-employed person/freelancer with a few large customers usually has the following advantages and disadvantages.

Benefits from a Few Large Customers

Less Acquisition
If you rely on a few large customers, you also have to invest less working time in customer acquisition. You don't have to find so many new customers and you often work with larger customers for longer. This means that you can spend more time actually implementing the orders and therefore bill more.
Follow-Up Orders
With large customers, larger orders are of course also implemented, which in turn often results in follow-up orders. Permanent maintenance and care tasks are also not uncommon.
Less Changeover
Large orders usually mean less time spent on changeover and familiarization with a new project. You don't switch between projects that often and often no new project is added over a long time. This means that you can put more hours a month into billable work.
Interim Invoices
For larger projects, you don't have to wait until it is finished, you can submit interim invoices regularly. This means that more money comes into your cash register. And since the customer wants the project to continue and be completed, these interim invoices are often paid promptly.
More Profitable
Larger projects tend to be more profitable. On the one hand, this is because large companies are used to paying higher hourly rates and therefore plan more budget. On the other hand, as a service provider, you can usually bill customers for more hours per month, since the administrative effort is lower.

Disadvantages of a Few Large Customers

Losing a Customer
One of the biggest drawbacks is the risk of losing a large customer. With a few large customers, of course, it hurts when they turn their back on you and such large customers/projects are not that easy to replace.
Variety
Some self-employed / freelancers may lack variety if they only have a few large customers. Often you work on the same projects over a long time.
Dependency
You also get into a certain dependency. It is difficult to reject new orders that you do not like so much from large customers if you do not want to lose the customer entirely. In addition, it is possible that the customer knows his importance for the contractor and then puts pressure on him, for example, when setting prices.
Administrative Apparatus
The decision-making process is often longer for large customers than for small companies. Several departments have to approve something or the preparatory work is passed from table to table. It is therefore important that you have a contact person who is responsible for everything and, ideally, also has a lot of freedom to make decisions.
Lots of Paper
Large companies often do everything in writing. That can be a bit annoying at times, but on the other hand, it also means less ambiguity.

As you can see, there are both advantages and disadvantages with large customers.

Advantages and Disadvantages of Many Small Customers

But even small customers have advantages and disadvantages. If you rely on a lot of small customers, you have to deal with the following points.

Benefits from Many Small Customers

Less Risk
If you have a relatively large number of smaller customers, the loss of a customer is of course not that bad. That only ensures relatively little loss of income. In addition, new small customers can be found relatively quickly.
More Variety
As a service provider, you naturally have a lot more variety because you work on a different project almost every day.
Independent
Overall, you are also more independent. It is easier to say “no” when a certain job gives you a stomach ache.
Projects Completed Faster
Smaller projects are usually completed faster so that you can write a final invoice more quickly.
More Flexible
Small customers are often a little more flexible and the decision-making paths are short. That makes the coordination with the customer faster and more direct.
Experience
Working on many smaller projects can lead to learning more because you get a lot more different jobs.

Disadvantages from Many Small Customers

Organizational Effort
Many small customers mean a lot of administrative effort. You have to coordinate more with customers, make more calls and write more emails. Invoicing is also more complex. In addition, more time is often spent on meetings and, for example, trips to customers.
More Acquisition Work
Since small projects are completed more quickly, you have to find new customers regularly. That means spending more time acquiring new customers. During this time you cannot do any work that can be accounted for.
Adjustment to New Customers/Projects
Every new project naturally requires a certain amount of time to adapt. And since you keep getting new projects, it takes time.
Small Customers are Often More Strenuous
In my experience, smaller customers in particular are often a little more strenuous. Especially those who pay close attention to the price and haggle at the beginning often do most of the work afterward and want to have many small things done on the side without wanting to pay for them.
Saving Money is More Important Than Quality
While the expectations of small customers are often quite high, they usually want to spend as little money as possible. The quality often suffers as a result, which in turn sometimes makes customers dissatisfied.

Cost/Benefit Balance

As a founder, it is not so easy which variant you choose. I recommend doing this with a cost/benefit analysis.

By that, I mean that you primarily accept those orders that you can implement particularly efficiently. Efficient means that you do a job with as little effort as possible.

To do this, of course, you have to have already completed a few jobs. You should work on this after graduation and analyze how many hours you could bill and what the overall hourly wage looked like.

If you have evaluated a few smaller and larger orders in this way, you can better decide whether smaller or larger customers are more profitable in your situation. You should always keep an eye on the potential risks/disadvantages.

Combination

For most self-employed and freelancers, it makes sense to use a combination strategy. That means that you have 2-3 large customers and a few more small ones.

You should make sure that no customer is responsible for more than 1/3 of your income.

This combination allows you to use the advantages of small and large customers and to compensate for the respective disadvantages somewhat.

The Problem of Bogus Self-Employment

A few more words about bogus self-employment. If you only work for a large customer, you run the risk of being considered self-employed.

Above all, this has tax disadvantages, which is why you should pay attention to a few criteria. I have listed these in the article Part-time self-employed.

The danger does not only exist with part-time self-employment, but also with full-time self-employed people who only have one customer.

Conclusion

You have to take into account the situation in your industry and the experience with previous customers when deciding whether you would rather have a few large customers or many small customers. You should also consider the general advantages and disadvantages.

Often, however, you will only find the right balance over time, which is why you should always take the time to analyze the current order/customer situation and draw your conclusions from it.

Ideally, you will find a balance that enables good income, less stress, and a certain degree of planning security.

Opinion Poll

Finally, a little survey on this topic. I would be delighted if you took part in large numbers. :-)

Do you prefer to work for smaller or larger companies?

Better for smaller companies. (45%, 113 votes)
Better for larger companies. (24%, 61 votes)
I do not care. (18%, 46 votes)
I don't even work for companies. (12%, 29 votes)

Number of participants: 250 (1 vote)

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