But They're Our BEST Customer!

Sometimes, but not always.

Here's a case in point - just to show some of the pitfalls you want to avoid when it comes to that 'best customer' of yours.

A recent client had grown at 40%+ year over year and was positioning for further market expansion. This Phoenix had an envious trajectory on paper - and seemed ready to unfold its wings to soar farther and higher than ever before.

When I looked at their revenue history by customer - I noticed that over 50% of their revenues came from their top 3 customers - with the largest customer contributing over 25% of total revenue.

That's a pretty scary thing if you ask me. Call my cynical, but I've grown to suspect anyone that is known as a "best' customer and who has that much impact on your bottom line. To be fair, sometimes these type of relationships really are good for business. It's just those select few that will kill you dead.

When I asked the executives about the revenue volume attributed to that specific account - I got these big grins and watched as pride literally swelled their chests.

Seems that customer had been a huge battle with their leading competitor a couple of years back. The competitor was more than 10 times larger than my client. But my client had won the initial RFP - which was the first of many and a Huge Opportunity. Since then they had been "thick as thieves" with the customer in question.

Small follow on deals had materialized as promised. Although:

• The margins had been lower than expected.

• And yes, the customer had required custom development for each of the follow on deals - which they expected my client to cover as part of the normal cost of doing business.

• And of course, now that they had such a large deployment, they expected a special level of support that included my client's personnel on site (at my clients' expense).

• But man, they love us for all we do, and they are our best customer!

Well, it seemed obvious to me that there were soft and hard dollar costs associated with this account that might be questionable. But I let it slide - for that moment.

My client continued with the story. Seems they'd had a big problem with the installation. The client had been pretty upset when the solution didn't work as expected. My client invested man-years of investigation, but they'd finally tracked down the problem - which was in another vendor's technology. It took a while, and my client had to show the other vendor how to fix their problem - but in the end the customer was up and running and happy as a clam. And the other vendor loved my client now too - they were proposing more deals with them than ever.

Why wouldn't they both love my client? Sounded like free development, free problem determination and resolution, free coding and even free training to a vendor that hadn't spent a dime with them.

Sound scary? It gets better.

Seems the customer had the next RFP coming up for decision in two weeks - the next big step in the roll-out my client had initiated almost 2 years previously. My client's team had been on site continuously, working with the buyers and users and engineers to offer just the right response. The business was a shoe in - and for a change it was at a reasonable margin. Finally the investment in this huge customer was about to pay off.

You can guess the ending to the story right?

The RFP was awarded to a competitor. Yes, it was the vendor that was 10 times my client's size. They underbid them by 3%. And the customer switched vendors faster than I switch toothpaste.

• They'd let my client do the grunt work and break the ground on the first round of solution deployments.
• They'd waited for my client to work all the bugs and issues in the customer's infrastructure.
• They'd let them cover all the associated costs
• Then they'd swept in and taken the bigger, and more profitable, deal.

The vendor my client helped? They'd partnered with my client on the RFP. But they'd also partnered with the other vendor who won - and since their technology actually worked, well, they were guaranteed a piece of the business no matter who won the proposal.

And the customer? Well, they really appreciated all that my client had done for them. Really. But business is business and we have to go with the most cost effective proposal. You have to understand that, right?

Oh, and by the way - we still have a few things we need you to fix for us...