Let me ask you a question. If you had a single lead source — just 1 customer — that generated 95% of your new leads and sales, would you have a real business?
Of course not! You’d basically be an employee of that large customer, regardless of how you organized your business in a legal sense.
What about this? If you have 1 lead source that generates 95% of your new leads and sales (or even 40%), do you have a real business? Can you rely on that lead source and trust that your business will be okay tomorrow?
The answer for most people, even if we’re only talking about 40% of new leads and sales, is no. You can’t afford to lose that lead source without, at a minimum, a decrease in your work force. In reality, most businesses cannot lose 40% of their incoming leads and sales and still stay in business.
Still, tons of small businesses make this mistake, employing a “strategy of 1,” where they have:
- 1 primary lead source
- 1 large customer
- 1 employee in a critical area of the business
The band Three Dog Night may claim that 1 is the loneliest number, but I’d take it even further. 1 is a horrible number, unless it is followed by many, many zeroes. And even then, I’d prefer a two followed by many, many zeroes.
Why 1 Lead Source Is Unsustainable
When I first started The Newsletter Pro, a full 75% of my leads came from 1 lead source. In the beginning, when we were small (under $1 million in revenue), it seemed to work fine for us. But, as we grew to nearly $1 million in revenue and beyond, we realized quickly that we needed to diversify.
Why? Sometimes, lead sources go bad and large customers cancel. If you’re staking your entire business on that, you’re going to be in trouble.
These days, I see lots of businesses in danger, especially with Facebook. Like Adwords and SEO before it, one day, Facebook is going to make a change. It’s inevitable that this change will affect your business. Facebook can giveth, and Facebook can taketh away. The moment your dollars are no longer in their users’ best interests, you are gone.
The 3 Rules Of A Sustainable Business
I live by 3 central tenets when it comes to large customers and lead sources.
Don’t eat from your largest customer. At a minimum, don’t use the profits from the largest customer for your day-to-day expenses. Use those profits to invest in growing the company, purchasing new equipment, etc.
No customer can be greater than 10 percent of your revenue. If I end up with a customer greater than 10%, I must be willing to grow the business large enough to ensure that that customer is no more than 10% of revenue. Preferably, they would be 7% or less.
No lead source can be greater than 25% of new incoming leads and sales. If 1 source becomes greater than that, you need to invest in order to find additional sources of leads and sales.
Diversification Is Key
As an entrepreneur, I’m absolutely not saying you shouldn’t seize promising opportunities as they arise. Feel free to grab each new revenue source and run with it. Just be prepared to work hard to bring it into alignment with the 3 rules above.
According to Zach Watson of TechnologyAdvice.com, “A diverse lead pipeline isn’t a hindrance; it’s a critical asset to the long-term growth of your company.” Only with this approach will your business see sustainable growth and success.
If you want to learn more about a tool you can use to grow your business, request a complimentary copy of our book, The Ultimate Guide to Newsletters, here.