How Customer Overdependence Can Undermine Your Growth, Margins, and Future
For many small and mid-size manufacturers, long-term customer relationships can feel like a safety net. But what happens when that net becomes a trap? Stephen Smiley, WMEP’s Business Transformation Services Leader, explains that manufacturers can face significant business risks—perhaps more than they realize—when one or a few customers account for most of their sales.
The Hidden Cost of Overdependence
When a small number of customers represents a large share of total revenue, a manufacturer’s flexibility, profitability, and future viability are at risk. Those top customers can make demands, push back on pricing, or threaten to leave, and the manufacturer has no choice but to comply or risk losing a significant portion of their revenue. “You’re not just vulnerable to market shifts—you could be vulnerable to the whims of a single purchasing manager,” Stephen emphasizes. “And if that customer changes direction, reduces volume, or goes elsewhere, it can send your business into a tailspin.”
Often the Symptoms Tell the Story
How do manufacturers know if their customer mix poses a business risk? As Stephen points out, manufacturing leaders rarely just say: “I have a customer concentration problem.” Instead, warning signs appear: declining margins, inconsistent sales, customer demands that disrupt operations, or sleepless nights over financial uncertainty. Many leaders feel stuck—they sense that the status quo isn’t working but can’t pinpoint why. “When you’re immersed in the day-to-day, it can cloud your perspective,” Stephen explains. “It’s especially hard to recognize customer concentration as a problem because those long-term relationships have likely supported the business for years.”
Awareness Is Only Part of the Challenge
Simply recognizing a customer concentration issue isn’t enough to solve it. Many business leaders know they need to diversify but aren’t sure where to start. Others have tried and failed to gain traction in new markets, often because their efforts lack focus or a clear value proposition. Some may even hesitate to acknowledge that change is needed. Stephen notes that every manufacturer’s situation is unique—and that’s where an outside perspective can help bring clarity and relief. “Most manufacturers excel at making products, but they may not have as much experience with the front end of the business or developing effective action plans,” Stephen explains. “A fresh set of eyes can help companies see the situation objectively and chart a practical path forward.”
From Risk to Resilience: Your Next Move
Business diversification doesn’t happen overnight, but with a simple, structured process and an insight-driven approach, manufacturers can gain clarity, prioritize high-impact actions, and reduce their exposure. If you’re seeing financial warning signs, don’t get stuck worrying about where to begin—commit to a thoughtful process to uncover root causes and define solutions. And if needed, bring in external expertise. “When we lead manufacturers through a discovery process, the real issues become crystal clear,” says Stephen. “It also relieves the pressure and time constraint of administering an internal process and having all the answers.” Whatever your starting point, the goal is the same: regain control and protect your business for long-term success.
WMEP is a nonprofit consulting organization with a simple mission: help Wisconsin manufacturers succeed. Our advisors bring real-world industry experience and deliver practical solutions across three key focus areas: Growth, Operations, and People. Contact us to learn how our quick, low-cost Profit Risk Assessment and our Growth services can help you quickly identify and manage the top risks to your business and future success.