Winning a contract with a major retailer as a SME is often a cause for celebration.
Along with the prestige of being associated with a big brand, it can often mean a higher and more secure revenue stream.
There are, however, a few downsides to dealing with a much bigger client, so you need to handle the relationship correctly so the advantages outweigh any negatives.
How can you make sure their demands don’t overwhelm your small business? Here are four great tips to keep in mind.
1. Divide your eggs
You’ve heard, “don’t put all your eggs in one basket’, and that split should be no more than 60% in the basket of your biggest client, and ideally no more than 50%, no matter how big they are. The reasoning behind this is pretty simple: if they go bust or decide to terminate the relationship, your business will certainly take a hit, but if you can contain the damage it might not be a devastating blow.
Also, in all the excitement of securing a major retail client, don’t forget your other customers, especially the ones that supported you when you were starting out, and those that have been loyal clients for a long time. It’s textbook tactics for the large retailer to encourage you to drop other customers as they are, in effect, their competitors. Stick to your guns and diversify your client base.
2. Secure your legal position
Due diligence is essential, but don’t forget to look both up and down the supply chain. Before you go ahead with your big client, read the supply contract carefully. These commonly contain penalties for issues such as late delivery. Also ensure you agree on your warranties, including what is actually covered by those warranties, and how to handle returns. Set out a clear process so you’re not surprised by deductions without consultation.
Downstream, look to secure relevant contracts with your suppliers. It’s standard practice for big retailers to try to go direct to the source wherever they can, so make sure you have that covered so they don’t cut you out of the supply relationship.
If your brand has any intellectual property such as designs or trademarks, make sure it’s secured with the right protections to prevent clients from subsuming it.
3. Manage your growth
When you take on a big customer, your volumes can go through the roof in a matter of weeks so you need to make sure your supply chain is robust enough to handle growth without sacrificing quality, taking shortcuts and/or getting behind with your delivery dates. In this case it is better to under promise and over deliver: promising too much and then letting the customer down will destroy all the good work you have done to get yourself on their radar.
One way to grow sensibly is to stagger the supply expectations over a few months and steadily increase volume so you can ease into the relationship and test your supply chain.
Otherwise, be prepared to say ‘no’ or ‘not right now’. If you have any doubts about your ability to supply them, it is better to tell the truth and say that you are not quite ready to handle the business rather than fail to deliver and burn that bridge. You can take some time to work on your supply chain and come back later when it is ready.
4. Be assertive
One of the hardest things to do is stand up to your biggest customer, but it’s crucial that you have the confidence to speak out if you feel the relationship is becoming untenable. Make it a priority to address any unconscionable behaviour on the part of the retailer, particularly in the early stages of the relationship where many brands like to flex their dominance.
Big retailers get what they want because they have the weight of their brand and size behind them. Make sure you get what you want from the deal by having integrity, strong existing relationships, and a robust supply chain supporting your business, no matter what the size difference.
Steve Layton is the CEO and founder of Sofa Brands, and a longstanding key player in the Australian furniture industry. Sofa Brands brings heritage Italian-made and designed Calia Italia and Nicoletti Home sofas and upholstery to Australia and New Zealand for consumers to purchase at as little as one-third of the price of a typical Italian-made, top-of-the-range sofa. All without diminishing the quality of the models, which are backed up by a lifetime warranty on frames and a five-year warranty on leather, foam and fabrics. It is anticipated that the brands will be available in select partner stores and market places in Australia and New Zealand by the end of 2018.