The question just about sums it up. What things should I look out for whether in the app, the business, customer service, anything… Want to get this right.
Make sure you can handle the support load.
Make sure not to forget the other users.
Basecamp - when they started out, they intentionally set out that companies can’t pay them more than a certain amount (I think they set it at 149 US$?). This means, they can focus on serving as many users as possible and never come under pressure because of a key client / account.
It all depends what you want to do in the future. Serve many people or focus on a few big key accounts. Mixing it can become problematic because the needs will be different (e.g. a 20 US$ per month and a 990 US$ per month account will have different feature wishes).
They’re 3x the size of most other customers? Or of your entire user base out together?
If the former, that doesn’t really seem like too big of a stretch. Actually that seems about what most pricing tiers would shoot for between their high end plan and low end plan.
Hey All,
Thanks for the ideas. Kalen, 3x my entire user base.
David
Having run a company where one client dominated the monthly revenue of the company (though ours was around 2x all other users combined), there are a number of issues to look out for. Our company went out of business because of it. Please consider this a cautionary tale, not to dissuade, but to provide some additional context to your decision.
The first part is to realize that practically speaking, that client owned us. That client was essentially our VC. They can push us around and force us to make decisions that were not in line with our (or our average customers’) goals. Now, if the goal of your company is to ultimately serve companies of a similar size to your new mega-client, your goals may be aligned, but tread carefully if they’re not.
Now you may say “I’m the boss! I can do whatever I want. That’s why I’m bootstrapping. I don’t have to bend to the will of any one client.” And that might be more true than if you had a board that was also pushing for more and more revenue cost-be-damned, but here are a couple of scenarios you’ll want to be cognizant of.
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Depending on your service, a client that large could inordinately change your infrastructure costs. For example, we had to scale up our infrastructure about 3x in order to accommodate our mega-client, which cloud services are happy to help you do. It took roughly 10 minutes to scale our infrastructure up. Yay! Except that bit us hard when that client churned. You now either have to continue paying for that now-overkill infrastructure, or spend time figuring out how to scale down. Scaling down is not a simple process, so be aware that churning a customer that large might leave you with a more-or-less permanent change in your infrastructure costs.
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You’ve introduced financial risk. You may have an iron-clad terms of service for your business (we spent $15k on ours), but when it comes time, there’s nothing to stop the client from simply disputing the charge with their credit card company. Spoiler alert, the credit card company will almost always side with their client. Meaning you could be staring at a giant chargeback, a negative bank account balance, and your only recourse is to spend additional $X0,000 in legal fees and months and months of time to get a legal judgement that may or may not end in your favor. Now, obviously, you never want to get to that point, but know that it’s possible so that if the customer-relationship ever starts to sour for whatever reason, you know what you’re looking at. (For background, our client was willfully violating an anti-spamming policy in our terms of service and doing it with impunity. When we suspended their account for review they reneged on their contract and disputed all previous charges.)
Now, those are just some of the risks of what happens when a large client churns. But just like you never start a marriage assuming divorce, you’re never thinking about those large clients churning when you cash their first check. You’ll treat them right, they’ll love us, it’ll be a match made in heaven.
But precisely because their churn would be so impactful, it becomes a subtle consideration in places you never imagined before.
You consider it when you’re prioritizing feature requests. You consider it when you allocate infrastructure resources. You consider it when you’re deciding your ideal customer profile (big outlier clients skew the focus of your ideal customer, so marketing decisions become harder). What will mega-client think if our marketing materials focus on how we help small shops?
All of that is to say, be very careful. Mega-clients have the ability to throw your product way out of balance.
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I think there’s a rule of thumb somewhere that you shouldn’t have more than 20% of revenue from a single customer. Tried to do some quick googling for that but didn’t find anything. I’d imagine there has been some writing on that topic you could check out.
I think it depends a bit on what kind is scale we’re talking about. If you had three customers at $100/month and this other big customer was $900/month that might be reasonable.
But if you had 30 customers at $100/month and the big customer is $9k / month, I’d say that’s probably overkill.