In one of my previous posts, Growing Little Customers Into Big Customers, I talk about the advantages of establishing an ongoing relationship with a customer that generates a lot of recurring work for you. If you take the thoughts in that article to an extreme, you might conclude that you should find one good customer and focus all your attention on them.

There are several reasons that devoting all of your time to a single customer is dangerous. The most obvious one is that your success or failure is entirely dependent on the success or failure of your single customer. If you are in charge of all of their design, you may be able to do a lot to ensure their success, but there will always be things out of your control that can go wrong. If changes to their industry drive them out of business, you’ll be in the position you were when you first started your business: no paying customers.

The exact number will vary depending on the specific situation of your business, but I recommend that you strive to have enough diversity in your client list, that no single customer accounts for more than one-third of your revenue. Does that mean you should turn down work from your star client when it would push you over the one-third mark? Probably not, but it does mean that you should ramp up your marketing efforts to bring in more income from other sources.

Another aspect to consider is the strain it can place on your relationship with your customer when you are overly dependent on their business. Your customer (or at least the advisors whispering in your customer’s ear) may be tempted to negotiate more favorable contract terms from you when they know you can’t very well walk away from the table. Remove the temptation by building up enough other business that you don’t need any single deal. Price negotiations aside, this is a good place to be. Sometimes your favorite client may come to you with a project that you see is going to be a disaster for everyone involved. If you can’t talk them out of it, at least you can politely decline on that project and avoid getting sucked in to a bad situation.

Even working with a single client that’s stable and reasonable has disadvantages. You’ll quickly get accustomed to a certain way of doing things. Your client is always interested in a similar set of features and design elements. Over a period of time, your skill will begin to stagnate. When you are regularly interacting with different customers, you get exposed to different requirements. You’ll continue to grow as a professional as the variety of jobs pushes you to develop your craft. Not only does this growth benefit you, it also benefits your clients. The smart ones will value having a designer whose abilities improve over the years.

A less sexy (but not less important) argument is the tax and legal ramifications of doing the majority of your business with a single client. At least in the U.S. the IRS wields the power to classify you as an employee of your customer instead of an independent contractor, regardless of how you’ve been thinking of the relationship. Although they provide a list of criteria considered when defining an independent contractor, there is no concrete information about how much variance from the criteria will get you labeled an employee. I advise erroring on the side of caution.

The extent to which the worker makes his or her services available to the relevant market. An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
- page 6, IRS Publication 15-A, Employer’s Supplemental Tax Guide

The general consensus based on what I’ve read is that the above excerpt can loosely be translated to mean, “Do you make efforts to have multiple customers?”

Obviously this last bit only applies to the U.S. If you can shed some light on taxes and legal issues in other countries, I invite you to add a comment below.

filed under: Running a Business