Have you been McKinseyed by your biggest customer?

“What is the largest percentage of revenue your biggest client can represent before you get nervous about putting too many eggs in one basket?” That is a key question you must answer during your annual strategic planning meeting. The larger the percentage of your revenue that comes from any one client, the greater the risk.

You can lose that client overnight, even if the client loves you. They could go bankrupt, taking out not only future revenue but also receivables and any specialized inventory you’re holding for them. They could be acquired by a company that uses an alternate supplier. The client’s in-house buyer could be replaced by someone with different relationships. Or, as our client named it, you could be “McKinseyed.”

What is McKinseyed, you ask? Every few years, one of our strategic planning clients comes under price pressure. One of their customers hires a consulting firm, often McKinsey, to help them improve profitability. The consultant bombards that customer’s vendors, including our client, with endless questions about how long it takes the vendor to perform each little microstep in delivering the service. The consultant then conceptually unbundles each vendor’s service, identifying each of the microsteps that costs more than a competitor’s or which they consider to be valueless. They then insist that the vendor, our client, has to reduce their price to match the consultant’s analysis.

However, it’s unreasonable to expect a vendor to continue to provide a high value-added bundled service at a dramatically reduced price. The only response to being McKinseyed is to unbundle your service. Update the service agreement to make explicit what the client receives for the new, reduced price. Establish charges for anything outside this service agreement. And, this is the hardest part, charge for everything. Changing your company’s pricing and service culture is always a challenge, but that’s another blog.

Your executive team can be your most valuable asset. Strategic planning is the most effective tool to utilize that team. For more ideas on how to fully utilize that team read my Wiley Employment Relations Today article on How to Double Impact — And Output — of Your Management Team.

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