Grow Your Business

How to Safeguard Your Business by Diversifying Your Customer Base

    • 23 August 2018-Chad Gonka is photographed at First National Bank in Columbus, NE.
    • Chad Gonka

      Managing Director, Community Banking
      Mar 30 2021

How to Safeguard Your Business by Diversifying Your Customer Base

Author: Chad Gonka, Managing Director, Community Banking

Often, small to mid-sized businesses (SMBs) enter into long-term customer relationships. While these stable business contracts can bring continuity and a consistent source of revenue, relying solely on a few valued clients can inadvertently put the company at risk. That is why it is important for SMBs to diversify their customer base.

Why Should I Diversify My Customer Base?

While a well-diversified investment portfolio can help you to handle economic downturns in a particular industry, diversifying your customer base can do the same for your business. On the other hand, limiting your customer base to a few relationships can put your business at risk. For example, if one of your largest customers should go out of business or adjust their purchasing habits, your company will immediately see an impact on revenue.

It also isn’t uncommon for businesses in long-term relationships to seek more favorable payment terms or discounts in recognition of their ongoing patronage. The impact of these agreements is felt more keenly on the bottom line for businesses who are heavily reliant on these customers for their overall revenue.

A well-diversified customer base helps to level the playing field by making it more difficult for customers to exert pressure when negotiating terms. A diversified customer base may also protect your business should one customer decide to deflect their sales to a competitor or leave the market.

How Do I Diversify My Customer Base?

Having a diversified customer base means having a larger number of clients, which can come with the need for additional staff to service those customers properly. With more customers you also must meet a wider range of needs. It’s important that your business offers the products and services a larger customer base demands. Having the proper bandwidth and product offering are important considerations before you start bringing on new customers.

Additionally, customer diversification involves broadening your business contracts to include companies of varying sizes, revenue and industry sectors, allowing you to mitigate risks and build more profitable future outcomes. In practice, there are many strategies you can take.

The first involves expanding your business by entering new market sectors. You can take this approach by finding new segments or niches for your product or by seeking new geographies to serve.

Regardless of the approach you take, finding new business customers will likely be the biggest challenge. Building new relationships has increasingly become a matter of networking, so consider asking for referrals from current customers or business relationships. Referrals have been shown to drive revenue growth, delivering a 25% higher profit margin. When it comes to getting referrals, don’t be shy. Consider asking current customers or running marketing campaigns that offer rewards for customer referrals.

Also, consider the power of your staff. Internal diversity can drive customer acquisition efforts by opening your company to a diverse network of employee friends, family and former colleagues.

Lastly, make sure your company has a strong online presence. Research by Gartner reveals that B2B businesses spend the majority of the sales cycle researching independently online. If your company isn’t offering information through digital channels, you’re risking potential customer relationships and future sales.

While diversifying your customer base will take effort, the rewards are worth it in the long run, safeguarding your business against potential revenue disruption and encouraging greater long-term success.


About the Author

Chad Gonka serves as Managing Director, Community Banking for Columbus and Norfolk. In his role, Chad oversees the team that works with business clients. Working in banking and finance for nearly 20 years, he greatly values the relationships he has built with clients and in the community.

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.