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Archive for July, 2011

Depth and Breadth

Monday, July 25th, 2011 by Troy Schrock

I once worked in a distribution business where the customer was the end consumer.  Leaders in that business often said, “Depth equals profitability and breadth equals stability.” 

By “depth equals profitability,” they meant that more volume delivered to an existing customer directly led to greater profitability.  This makes sense, of course.  Delivery efficiencies increase and selling costs are lower than when securing new customers. 

If the saying had stopped there, however, the business would have been very vulnerable.  If you focus entirely on selling more to existing customers, what happens if one of those customers suddenly stops doing business with you?  Lack of diversification in revenue stream is a glaring risk for any business – particularly small ones.   That is why “breadth equals stability.”  Customer attrition will happen, so broadening your customer base is extremely important to improve your ability to survive it. 

In short, the long-term health and stability of your business depends on a balance between depth (share of customer) and breadth (share of market).