The Rule of 15%: Concentration Risk

One of the biggest single risks I see with organizations is when they don't follow something I call the rule of 15 and that is never let any customer or critical supplier equal more than 15% of our revenue or profitability. And this is something that we have to de-risk ourselves around all the time in organizations. So, you know, if you're in that situation right now where one customer represents a huge portion of your business, actively put in place priorities that de-risk you over time. Meaning you're going to add more clients that are like them, you're going to find ways to attract more ideal clients, and there are definitely ways to do that.

One of the coolest things I see as a coach is in the situations where I've seen that, and I've seen quite a few, is that we tend to get very, very good over time at being able to de-risk ourselves and dropping that percentage because we start to understand who our ideal customer is and how we get more like them. And so in a lot of cases, you might have one ideal customer when we start and we have within a year five. Great, down to 20% risk at that point. Get that number down even further, get to your sixth and seventh ideal customer.

If we have a critical supplier we're working with who holds a large piece of our revenue or profitability, we might want to work with a couple to make sure we de-risk ourselves. You also see this too with channels. I'm not quite as concerned with that as I am with customer and supplier, but some channels I am. Meaning in a lot of cases we are getting everything through one channel.

That could be part of our strategic differentiation. Portions of that are okay, but we do have to sometimes be careful that we aren't running everything through one sales channel. We talk about sales channels, sometimes it's direct wholesale retail. Sometimes those are marketing channels.

Like we get all of our marketing through one source, right? We're doing everything through PPC, paid search, or through SEO. We have no other means to do marketing. And if any of those sources gets hit, gets challenged, gets hurt, we're in pain.

Sometimes I have clients that have a big percentage of their revenue and profit come from Amazon and being able to find other platforms is a great, it is a really critical thing to do to be able to scale the business and de-risk the business. So make sure you're looking at that rule of 15 across your organization and find ways to actively move against it.