Have you ever heard the phrase, “Don’t put all your eggs in one basket?” In the business world, this phrase means you should avoid doing the majority of your business with just one or a few customers. Most credit companies consider your customer concentration when reviewing credit applications. If 25% of your revenue is coming from one customer, you are concentrated. As a wise trucker once said, “If one customer makes up the majority of your revenue, you don’t own your business, that customer does.”
How can you diversify your customer base? Sometimes working with new customers requires some extra work on your part. To help, we’ve put together four tips for avoiding customer concentration.
Work with Credit-Worthy Shippers
In trucking, and in other business, it can be a common fear that a company you’ve hauled for will quickly go out of business before the bill is paid. We suggest you choose to work with credit-worthy brokers and shippers and conduct credit checks on each.
Look Beyond the Rate
If the rate is too good to be true, there’s usually a reason behind it. Many shippers and brokers who have poor credit are aware it’s bad. They know their pool of carriers to haul freight is smaller, because good carriers won’t take the risk. Or the carrier’s factoring company won’t approve the credit. If the broker has a smaller pool of carriers to choose from, they will have to pay a higher rate to compete.
Ensure Willingness to Pay
Even if you haul for the most credit-worthy brokers, there is still could be an issue of ability to pay. Bad debt can happen even from the most credit-worthy for a variety of reasons – insurance claims, missing or illegible paperwork, damage to freight, missed appointment, or issues with relationships arise. If the majority of your business is with one company and something happens, your business could be an issue of willingness to pay.
Select Varying Industries
Another area of concentration to consider is choosing which industries you work with. While spreading your business across multiple industries may be tough, it’s another way to protect yourself in economic downturns. For example, carriers whose business was heavily concentrated in hauling for the automotive industry really struggled when the factories were recently shut down. Depending on your equipment, you may be able to pivot your business easier than other carriers. Also, working with brokers give some additional flexibility, as they are generally not concentrated in one industry.
As you build your business, always consider how you’ve divided your customer base. Many carriers take a big leap with a relationship by adding several lanes with a broker or shipper who has treated them well. That’s good business. Just make sure to remember you’re filling your client roster with other customers as well to offset the risk with your bigger customers.
###
The England Carrier Services (ECS) division offers a variety of services for carriers ranging from maintenance to support. As ECS members, carriers have access to nationwide discounts on fuel and tires from dedicated team members who are committed to finding the best price. ECS also provides factoring services with benefits such as same-day funding to a bank account or fuel card. These options allow carriers the freedom to focus on growing their business while saving time and money.