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Tag: success

Direct Sales Team Vs Distributor – Which is Better For an International Market?
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If you’re looking to expand your sales to new markets, then there’s one big question you must ask: do I build a direct sales presence or use a distributor? Each method has its benefits and drawbacks, but we’re going to make a strong case to use one method over the other in almost every instance.

What’s the difference between direct sales and distributors?

A direct sales presence means that your company establishes, manages, and pays a sales team of one or more people in the target market.

An outside agent is any entity that will sell your product in exchange for a service fee. One example is a sales rep, who sells your product in exchange for a percent of the sale. A distributor is similar to a rep, except they would buy product from your company and sell it directly to the end customer.

Is Direct Sales Better?

For most businesses expanding into new markets, especially international markets, hiring a distributor is a better decision-at least until there is enough return from the market to justify building a direct sales presence.

Sure, there is one major advantage to having a direct sales presence-control. Control over the day to day activities of your sales personnel is appealing to most business owners. But this control comes at a heavy price. To start, you’ll need to spend the time to hire someone in that market, then train them, then equip them with sales material and management, if not office space and equipment. These costs are prohibitive for most small businesses looking to expand internationally.

And there are even more costs that we haven’t mentioned yet. Each market has it’s own unique laws, cultures and customs that are essential to master if your company wants to establish a successful sales presence. Japan is a classic example of a marketplace with unique legal structures and business customs that, if not followed, guarantee the failure of any sales efforts. It’s hard to pin down an exact monetary value to this learning, but ask yourself this: Can you afford to establish, manage, and pay a sales force in a foreign country for at least a year while they learn the ropes and generate no revenue?

What about a Distributor? Is a Distributor better for new markets?

Distributors are a cost effective means to enter a new marketplace successfully. Here are just a few of the reasons:
- No Overhead:
  Unlike running your own sales team, a distributor will take care of the hiring, managing, payment, and optimization of its channel. You’re just borrowing their distribution, while they handle the maintenance.
- Established Channel with Local Knowledge:
  A good distributor will already know all the laws and customs of the market you’re entering. You don’t need to reinvent the wheel-you can use someone who already has valuable local knowledge.
- Understand Pricing and Purchasing Power of Market:
  Along with knowledge of the laws and customs comes knowledge about the most successful ways to price and market your product locally.
- Cost Effective:
  Since you won’t be paying for the above items, distributor relationships are much more within reach of a small business trying to enter a new market.
Using a distributor has some downsides as well, but they can be minimized by building a good relationship with a distributor.
- Not your own people:
  You won’t be able to directly manage every step of the process. While it may make you nervous to lose some control over the sales process, you can manage the risk by building a transparent relationship with your distributor with constant updates and feedback from both ends.
- Distributor has many products to represent:
  You may not be the distributor’s top priority at any given time, and you want to be sure your product is not getting shuffled to the back of the line. Once again, a well-established relationship with constant contact will ensure that your product is getting the attention it deserves.
- Not a “turn key” solution:
  You can’t just give the distributor your products and expect success. You’ll have to manage the relationship. This takes time, but it’s still less costly than trying to install a direct sales team from scratch.
So what do I do next?

If you aren’t convinced that a distributor would be better for your organization than establishing a direct sales team, seek help from a consultant who has experience establishing a presence in new markets. A consultant can use his or her experience to analyze your opportunity and recommend the best course of action.

Before you choose a distributor, you need to know….

Choosing the wrong distributor will set you up for failure. The wrong distributor simply won’t generate sales, and you’ll have wasted at least a year finding and setting up an unprofitable relationship.

There are certain things to look for in a distributor, and they are different for every market. The best thing to do is to find a professional, one with experience in distributor relationships, and hire that professional to help you search for and identify the right distributor.

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Source by J. P. Williams

Views: 0
July 28, 2022
Cure Your Acne By Adopting a Vegan Diet

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If you are reading this article you are getting closer to finding the causes of your acne. I am glad that you might want to try to cure your acne by adopting a vegan diet.

I tell you that simply going vegan might not be the entire answer you are looking for. The reason that I tell you this is because the term "Vegan" is a very general term that simply means that the food is free from animal products.

Adopting a vegan diet that only consist of non toxic, non allergenic, and good for your specific genetics will definitely help to cure your acne. The thing is, is that there are many acne causing foods and ingredients that are vegan.

To give you an example of things that are considered vegan, but that will cause your acne to get even worse will include, Table salt. hydrogenated oil. food additives, food colorings, and anything that your body is allergic to.

Also one of the foods that makes me break out with acne is any kind of wheat product. Wheat gluten is known to cause many health problems. Wheat gluten is kind of like glue that holds things together in many vegan products in the store.

Many vegan foods that resemble meat actually contain lots of wheat gluten. Also a very popular food chain that brags about being vegan and vegetarian and the name has something to do with veggies and being grilled or something (I am being vague about using their exact name as I don't want to directly bash them), they use a lot of gluten.

So while myself and others have in the past adopted a vegan diet to try and cure acne have had success on a vegan diet. It was however a very specific vegan diet.

White sugar is vegan, also wheat gluten. MSG and its many names (you might want to research all of the names of MSG) is also vegan but is not good for you at all. So people throw the Vegan word around thinking that it is a magical characteristic of a diet that healthy.

This is where many vegans that are unhealthy go wrong. They are eating tons of vegan foods that are clogging them and making them sick. Bread can be very constipating and it contains wheat. Most people have a food allergy to wheat even if they don't make the connection between the bread they eat and their symptoms.

I am almost positive that if you are reading this right now you are probably very frustrated with all the conflicting information on the web. The big food corporations pay "ghost writers" to write nonsense to promote the foods they are selling even if they know what they are selling might not be good for you.

To avoid becoming brainwashed by the media, and to avoid what they are selling, why don't you make yourself a challenge. I challenge you to prepare almost all of the food and know what each and every ingredient that goes into your body is and what it is made of.

I challenge you to write down every last thing that goes into your body. It isn't as hard as it seems if you try to eat whole foods. Eat tons of Romaine lettuce, carrots, almonds and other raw nuts (no peanuts) extra virgin olive oil. sea salt, raw hone, olives, and other fruits and vegetables for a few weeks.

This means no fast food. You see French fries are vegan. In my opinion looking at the acne and food connection is that they are very unhealthy and probably cause me to break out in acne. The reason is that french fries are deep fried in oil and the oil is damaged by heat. Also the oil is probably made from GMO ingredients. This topic is too broad to explain why it is not good for you.

In short your body might perceive the oil as an allergen. Also the fries are also probably covered with table salt. Table salt is not good for acne.

Also there is a very popular fast food chain (which is probably the most well known for giving away free toys in the meals of the kids and brainwashes the youth and makes them sick at such a young age that they never know health and what it feels like their entire life) that clearly admits that their french fries contain things that can cause cancer. I am not kidding you. We need to read the warning on the fries.

Anyway, I don't want to get sidetracked, To help you to cure your acne and to be truthful, I want to let you know that adopting a vegan diet to cure acne is a good idea to try. It's just that you need to be very selective in designing your vegan diet.

Simply being labeled "Vegan" does not make it healthy.

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Source by Teddy Grandy

Views: 0

July 28, 2022
The Success Story of Beethoven

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Beethoven was born on 16th, December, 1770 in Bonn of Germany. His father was a singer in local palace choir. Beethoven’s father was a very common person and he was addicted to gambling. However, his mother was a fairly kind-hearted and gentle female.She married an assistant as her first marriage and married to Beethoven’s father when her ex-husband died.

Beethoven didn’t have access to go to school for the reason that his family was very poor. Nevertheless, he had a special feeling of music when he was very young.His father wanted to make use of his potential to make a big fortune. As a result, Beethoven had to practice playing clavecin and violin day and night under his father’s pressure.

Beethoven had a performance on a stage for the first time when he was only seven years old and he made a huge success.Some famous musicians considered him as the second Mozart. Beethoven learned how to compose music from Nifo and published his first work named Concerto in A minor when he was 11. He went to Vienna to learn how to compose music from Mozart and Haydn.

It seems that he would have a fairly bright future when Beethoven received the first success in 1800. Nevertheless, he was troubled with a terrible matter for years at that time.He found that he has became a deaf person. There couldn’t be anything more terrible than that for a musician. He sank into a blue mood for a long time as a consequence.

Beethoven has an enthusiastic heart all the time.But his enthusiasm was often unfortunate. He often tolerated both hope and enthusiasm,disappointment and resistance. There was no doubt that all of these emotions had become his unique source of creation. He fell in love with Julia in 1801 and composed a music named Moonlight for her specifically. To his disappointed, she couldn’t understand his noble soul and refused him. Beethoven was upset and despairing for that and married a comte before long. It was the most hopeless moment for him and once a time, he wrote down a paper of posthumous papers.

He came to life in 1803 and composed some bright and warm music such as The Second Symphonies. From then on, several more beautiful and marvelous music were produced. Some of them are fairly famous and I think you must have heard about them such as The Eroica and The Storm.

Beethoven finished his masterpiece named The Ninth Symphonies in 1823. This piece of work expressed his world in his dream.

He suffered from pulmonary edema in Dec.1826, which was resulted from a bad influenza.He passed away on 26th, March, 1827 for the reason of suffering from hepatopathy.

It is said that the day on which Beethoven died was raining heavily and storming seriously. It seems that even the God grieved over his death.

Beethoven’s funeral was fairly solemn and grand.It is estimated that over 20 thousand people presented his funeral.

Beethoven’s wealth and success in music was huge and great. There are few people who can surpass his competence in music creation. He is a great musician for us and we shall miss him forever and appreciate his works.

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Source by Linda Ding

Views: 0

July 27, 2022
How to Think Like a Marketer
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Many people say they hate marketing. That’s usually because they think marketing is all about advertising and sales.

Marketing is a process, not an event. It involves research, promotion, and distribution along with advertising and sales.

Maybe the most important and most overlooked aspect of marketing is having the right marketing attitude or marketing mindset. Think like a marketer.

When you have a marketing mindset, you ask how you can build brand awareness to help your target audience become familiar with your products and services, and you as well. Developing that know, like, and trust factor with your audience is key.

As you develop a marketing mindset, ideas of how to meet marketing goals on a daily basis will come easily, but here are a few ways to get started:
- Know Your Product & Service Inside Out: This may sound obvious but think about how many times we, as customers, have walked away from buying something because the person helping us couldn’t answer a few basic questions about their product or service.
- Find Ways to Leverage Mistakes of Competitors: It’s easy to see what the competition is doing well but just as much (and sometimes even more) can be learned by observing what your competition is doing not so well. The Internet is saturated with career service companies, but what makes your career service better than your competitors? Do your homework. Where are they weak? What client needs are not being met and what can you do to step in and meet those needs?
- Point Clients In Your Direction: Solve client problems. Point them to one of your services or products and emphasize the benefits, value, and results they can gain from it-being a solution to their problem.
- The “Bottom Line” Isn’t Just About Money Coming In: Looking for ways to save is just as important as finding new revenue streams. Instead of just recording where the money is going, watch for places to save. When looking at those numbers is there a way that sales can be made more efficiently?
- Every Client Interaction Is a Networking Opportunity: The word “networking” makes some people uncomfortable. But it doesn’t have to be about schmoozing or closing a sale. It’s simply having a conversation in an effort to build new relationships or strengthen current ones.
“The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.”-Peter F. Drucker

In business, everything ties into marketing in one way or form-what you wear, how you communicate (verbally and non-verbally), and what you do to attract, retain, and maintain client relationships. All of it affects or contributes to the profitability and success of your business.

Thinking like a marketer is a way of ensuring your company’s longevity.

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Source by Maria Hebda

Views: 0
July 27, 2022
Entrepreneurship and Innovation: The Inconvenient Truth

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Entrepreneurship and innovation: The popular belief

Entrepreneurs are widely believed to be the agents behind economic growth and innovation. They are, we are told, the movers and shakers who create new industries, unseat current leaders from their thrones, and open new frontiers for everyone. Popular culture tirelessly propagates one success story after another – from Facebook's Mark Zuckerberg, who was glorified in "The Social Network" movie, to Tesla's Elon Musk, an immigrant who became a household name, to Google's Sergey Brin, whose internet search engine name has officially become a verb in English.

So persuasive is the narrative of the entrepreneurial technological prowess and success, that many countries – including developing countries that feel they are lagging behind – develop comprehensive policies to support and promote entrepreneurship and even set aside sizeable funds to invest in startups via government-run venture capital programs. But is this fascination with and belief in entrepreneurs justified? How likely are entrepreneurs to push the technological frontier and bring about the kind of change that governments want? Entrepreneurship Professor Sergey Anokhin from Kent State University says the hard evidence is far less convincing than the popular culture makes you believe.

The dark side of entrepreneurship

In a study of 35 countries over a 7-year period, Professor Anokhin from Kent State and Professor Joakim Wincent from Sweden's Lulea University of Technology show that there is no universally positive relationship between entrepreneurship and innovation. While for the world's leading economies such as the United States the positive link between startup rates and innovation may be true, for the developing economies the relationship is actually negative. Such countries are more likely to see innovation championed by the existing companies, not startups. With few exceptions, entrepreneurs there pursue opportunities of a different kind that are based on imitation and dissemination of others' ideas, and are not equipped to produce truly advanced "grand" innovations. On average, startups are less efficient than existing firms. Accordingly, if local governments support entrepreneurship, economic effectiveness may suffer, and innovation is less likely to occur. In fact, successful technological development in emerging economies is often associated with an aggressive entrepreneurial behavior of large corporations, not individual entrepreneurs. Such is the case, for instance, of South Korea with its chaebols .

The figure below shows the vastly different impact of startup rates on innovation and technological development (as measured by patent applications) across countries. Only rich countries can expect more entrepreneurship to result in more innovation, says Dr. Anokhin. For the lesser developed countries, as the plot demonstrates, an increase in startup rates will only lead to less, not more innovative activities. The problem, according to Sergey Anokhin, is that developing countries often look up to the leading economies when trying to design their own policies. Moreover, quite naturally, the very textbooks that the students across the world use, are written by the scholars from the world's leading countries, and do not take developing economies' context into account. Taken together, it often locks policy makers in assuming the relationship between entrepreneurship and innovation that will not hold in their particular parts of the world. The pro-entrepreneurship policies will not bring about the effects expected, and the limited resources will be wasted to support activities that are largely detrimental.

What it all means

It is time to recognize that the relationship between entrepreneurship and innovation varies across countries, says Professor Anokhin. That is why World Economic Forum's Global Agenda Council for Fostering Entrepreneurship explicitly acknowledges that Silicon Valley success stories do not necessarily resonate in other parts of the world. Broad-strokes policies that aim at fostering entrepreneurship to boost country innovativeness may well be misguided. A contingency approach that takes regional specifics into account should be employed instead.

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Source by Sergey Ahmetov

Views: 0

July 27, 2022
5 Steps to Move From Employee to Entrepreneur
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Have you been considering quitting your day job in favor of starting a business? Have you just lost your job and are currently exploring alternative ways of earning a living? Have you always dreamt of owning your own business some day?

Before you take the leap of faith into self-employment, consider these 5 steps:
1. Get clear on your goals/passions – It’s not enough to decide to become a business owner. There are several questions and things to consider before you move forward in becoming a business owner. You will need to think about what kind of business you wish to run. You`ll need to determine if you wish to grow it from scratch, buy an existing business or purchase an available franchise. But even before you decide that- you should think about how the business will fit in with the rest of your life. Running a business can be a huge commitment of time and money. So ask yourself what do you enjoy doing or what will bring you joy? You will spend much of your day on your business so it’s a good idea for the business to provide work you actually enjoy doing. Ask yourself what you are most passionate about? What would you love to do? What is your dream job/business?
2. Do your research/homework – Don’t make any rash or impulsive decisions and don’t leave your day job until you are absolutely sure of what you want to do and have a plan for doing it. Take the time to do good research by researching the industry, the marketplace, your potential target clients, your competitors. Do proper business research including a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. Get a good handle on projected revenues and realistic operating costs as well as an understanding on how long it will take to breakeven and generate more revenues than expenses. Identify your personal strengths and skills and determine if there are any skills gaps. Determine how you will close any skill gaps or lack of expertise. Which gaps can be closed through skills training? Which gaps can be closed through recruiting the right people? Which gaps can be closed through coaching or mentoring? Determine what options and opportunities are available to you right now?
3. Learn from others’ mistakes – There is no shortage of people who have started or run a business. Speak to as many people as you can who have gone before you. Learn what you can about what works, what doesn’t, and what mistakes others have made. Don’t waste valuable time and money. Be open to hearing others` perspectives on what they would have done differently. Hindsight is always 20/20.
4. Business Plan ahead – Do the work and develop a business plan. While it may be a lot of work, it will be time well spent and most financial institutions will require one if you are searching for financing. The process of business planning is not only to prove to the bank that your business will be a success, it’s also a roadmap for you to follow to ensure success. Running your business finances can be like running your weekly, monthly or yearly personal budget – so if you haven’t developed good budgeting and financial management skills, it might be particularly challenging and doubly important to have a solid business plan.
5. Hire a mentor – Starting and running a business can be challenging or even lonely at times. In addition to the day to day operations of the business, you may be mentally or emotionally overwhelmed by being a business owner. Having a safe place to go to for advice, guidance, and accountability or simply as a sounding board can be just what you need to help you make the transition into entrepreurship easier and smoother. Good coaching and mentoring can really help you fast track your transition.
While there are many advantages to being an entrepreneur, it`s important for you to also consider the downside of self-employment. Become a business owner armed with as much information, skills and tools you can to ensure a successful transition from employee to entrepreneur.

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Source by Linda Cattelan

Views: 0
July 27, 2022
Why Your Mindset Matters

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Why does your mindset matter? Your mindset only matters if you want to have a better life. What matters to you?

Do Things Happen to You, or do You Happen to Things?

When life happens to you, you are existing. When you happen to life, you are living. Don't let people, circumstances, or environment keep you from living your dreams. Go out and make it happen, you will be glad you did.

Focus on It

Do you envision your success? Do you clear your mind of all distractions before you engage your mind? Filter out distractions, negative self-talk, and envision a time in the past when you experienced success. Think about the way this achievement made you feel. Focus your energy on the positive What you focus on-you find.

Are you Sitting on the Sidelines, or Getting in the Game?

Do you spend time wishing, or thinking about what you want or are you actively engaged in pursuing it? Don't waste precious time in your life measuring others achievements. If you spend any time on social media, be aware of this mind trap. If you must peruse others success, think about how they got there, and make a plan to replicate this success in your life. Take action.

Do you Settle for the Status Quo, or are you Pushing your Limits?

Is life ok, just good enough? Do you wish you had pushed a little harder to reach your goal? If you have a pulse, get busy! There is always time today to break the status quo in your life.

Are you Continuing to Learn From the World?

Keep learning new things even if the things you learn don't fit into your overall plan. If you continue to be a student for life, the knowledge will enable you to continue to grow in surprising ways. Expand your world.

Are you practicing Blame Displacement?

Sometimes in life, people blame circumstances, other people or things for the reason they did not get what they wanted in life. This habit goes by many names, but I like to call it "blame displacement." The tendency to blame others for events that do, or don't happen in life. Don't be a victim of blame displacement, look back at what you could have done differently, learn from the experience, then move on.

Do you learn from failure?

Famous people like Thomas Edison and Albert Einstein have said they learned the most from their failures. Look at your failures and take the information to be better next time. Just make sure there is a next time. Move forward and improve.

Fear

Is the fear of failure keeping you from what you want? The following are two different ways to handle the fear of failure:

1-Think of the fear you are harboring, then imagine the worst possible scenario that could happen if you take action. Ask yourself, "what's the worst that could happen?" If you can live with this-take action.

2-Fear is a future based emotion. It never takes place in the present. If you feel the fear use it as your rocket fuel to propel you into your goals-take action.

Don't let fear, lack of focus, others or your environment keep you from your dreams. If you envision your success and believe in yourself and you will be well on your way to achieve your goals.The law of nature wills that what you believe, you can achieve, and receive in life.

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Source by Nan L Hruby

Views: 0

July 26, 2022
Why Are Organic Social Media Fans Important for MLM Success?

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MLM success is fun and profitable but there is a dark side that has pulled people into doing unethical marketing. It's fun to watch social accounts climb in popularity, however it can be done in the wrong fashion. Organic social growth is the only way to go. Most social media sites are watching for black tactics that enables accounts to grow at a rapid rate and many of the followers are not existent. They can cause problems for your account especially when you're sharing content.

Your MLM success is based on the attracting and retaining leads and converting them into teammates. If social media sites catch you using unethical means to build your account, they will likely warn you before they shut down your account. That is not the worst of it most search engines especially Google are keeping an eye on this as well and will punish your content or website for bad social growth. Social media traffic is heavily weighed on search engines now. This means that your social media content has more points on search engines than it ever did.

Building organic social media fans for MLM success

You need to have an organic following to gain rankings in search engines now. This is the only acceptable method to stay "clean" with Google. You should never pay for followers. It's already difficult to weed out fake fans from the real ones. However, the real ones will engage with you from time to time. In some cases, most of the time if they love your content and you're responsive to them.

To build future MLM success, you know you need to be responsive, create lovable content and be available in the online and offline world. Your content will come in different styles and flavors because no two prospects are alike in their journey. The content needs to touch on their pains and their journey stage. Once you have your campaign outline, you can develop short and long form content to help you achieve results. Be open to game changers, sometimes you may need to throw a curve ball instead of a fastball. You can throw in a webinar or a workbook to make things more engaging or simple.

Engaging with your fans is a great to get your messages spread across the internet. They already like some of your stuff, so why not give them something for free. This can help you gain new sources of traffic and fans.

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Source by David L. Feinstein

Views: 0

July 26, 2022
Why Sales Doesn’t Have to Be a Numbers Game

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Telling stories is a great teaching tool to use in many fields, especially sales. At one of our recent workshops on pain, a participant from a technology company shared a story about an experience he had at a big-box TV store. This person went in to the store to learn more about flat screen TVs, with no intention of buying. He just wanted more information so he could make an educated decision when it came time to buy a TV, and get the best deal online, not at a store.

When our participant entered the store, he was greeted right away by a sales person, and before he knew it, the sales person was telling him all about the great features and benefits of each widescreen TV. The sales person never asked a single question about why he was visiting the store, or if he’d even been there before. The sales person was nice but never uncovered any pain. All he did was say, “Can I help you?”, and then proceeded to “spill his candy all over the lobby”, and give our participant all the ammunition he needed to go get his best deal online. The sales person never had a chance to close the deal.

Far too often, salespeople try to spill their candy in the lobby for a living. They throw information and free advice and their own time and money and resources against a wall hoping some of it will stick. “If I go to enough networking events, if I make enough new prospecting calls, if I talk about my product enough, if I ask enough people if they need this for their business, and if I make enough cold calls, then I’ll be successful.”

The numbers game is one way you can approach your career, but it requires a lot of work, and it often wastes a lot of time. On the other hand, the Sandler System is all about working smarter, not harder. Furthermore, if you combine the same tenacity and work smartly to uncover a prospect’s pain, you will become a Robo-Salesperson. Armed with new, effective questioning strategies and proven sales techniques, you will discover the prospects’ problems and deep-seated emotional needs, pains, and desires to find solutions (ones that you can provide). This will result in dramatically increasing your sales and reducing your work time and stress that goes with it.

Another participant in our Sandler Sales program sells gauges to machine shops and other companies. This guy is very meticulous and had a phone prospecting system he followed diligently, but when he left messages, very few returned his calls. Sound familiar? Well, this guy enrolled in our advanced training program and he carefully tracked all his results. Here’s what he found:

After the first year of learning the Sandler Sales System, his market of selling to machine shops experienced a 5% decline, however, his personal sales went up 28.6%. Since he worked on a straight commission, his personal income went up an equal amount. So, his income went from $93,000 up to $119,598. Our sales guy attributed this to learning how to leave an effective voicemail message, encouraging his prospects to call back, and it worked. After his second year in the Sandler course, his sales went up another 32.3% and his income increased to $158,228. Why? He became more effective at closing deals. In the first two years in the training program, he had boosted his commissions by 70%. The bottom line, none of his success would have happened without learning to uncover his prospects’ pain.

By the way, if you’re one of those people who believe “you can’t teach on old dog new tricks,” check this out. This guy wasn’t a kid. He was about 50 years old when he started learning the Sandler way, and still made those drastic improvements. I’m happy to say that 14 years later, he continues to attend and take advantage of our President’s Club classes. This sales leader is committed to being at the forefront of his industry’s selling knowledge curve and providing for his family, himself, and his own retirement.

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Source by Greg Nanigian

Views: 0

July 26, 2022
Why Customer Concentration Impacts a Business Sale Transaction
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Few owners recognize the major impact that customer concentration has on the sale of their business. Customer concentration represents a significant obstacle and will affect the salability, valuation, and deal structure of a business-for-sale transaction. Not only will it create problems in qualifying buyers but it will impact the ability for any prospective purchaser to obtain third party financing to complete the acquisition. Determining if customer concentration is present in an enterprise is a critical element of the succession planning process.

Customer concentration is a situation when one customer represents a significant portion of revenues or when the business has a very small customer base. Based upon the expert one consults, the exact percentage for a concentration to exist varies. In most cases it is recognized when one customer represents more than 10% of sales or when the top five customers comprise greater than 25% of a company’s revenue. In either situation, a huge risk is created from the lack of diversification and steps to mitigate it should be taken years in advance of a planned business exit.

When evaluating a business sale it is important for an owner to recognize that their client base has a significant impact on the enterprise value of the company. A broad and diverse base of customers where there are a large number of clients contributing to the business’ revenue will achieve a higher transaction value as it reduces the risk that a sizable decrease in earnings will occur if any one customer is lost or a particular industry segment that the business serves encounters economic distress.

In addition to a lower sales price, businesses with customer concentration issues are more difficult to market for sale. For main street business transactions (those with adjusted earnings of less than $2mm) third party financing is used in the majority of cases. Businesses with high levels of customer concentration are very difficult to get financed. Lenders may provide only partial financing, offer sub-optimal terms, or decline the loan altogether. In situations where third party financing is not available, the pool of available buyers is significantly restricted and the terms of a deal could be heavily weighted on a contingent earn-out based on retaining the revenues derived by the largest customers. “Typically we want no customer concentration over a 10% level when considering financing an acquisition. Higher levels are possible with much more explanation and supporting documentation but remain a major concern” states Steve Mariani, President of Diamond Financial Services.

Lastly, customer concentration will have a direct impact on the deal structure for the business sale transaction. Buyers will strive to bridge the customer concentration risk through a variety of delayed ‘performance based’ financing methods. For example: Assume both parties agree on a transaction price of $900,000 based upon $300,000 of adjusted earnings (a 3x multiple). If the key account in question represents $75,000 of the $300,000 this would represent $225,000 of the transaction price. A buyer will strive to isolate the $225,000 component to ensure that revenue is maintained post sale. After a period of 12 months, if the customer and income are still in place the seller would receive the funds. If the identified client and corresponding revenue was lost during this period, a pricing adjustment would be made.

In situations where the buyer is unable to obtain transaction financing due to customer concentration issues, the seller might have to accept a “contingent earn-out” for the revenues derived from the largest customers, or worse, they may also have to finance a major portion of the “non-contingent purchase price” negotiated with buyers.

Contingent payouts could be structured in a variety of methods:

Earn-Out:

Earmark part of the purchase price with payments made over a period of time contingent upon the retention of specific customers or achieving specific revenue targets.

Escrow:

A percentage of the acquisition price will be held in an escrow account for a specified time.

Seller-Financing:

The seller would be responsible for financing a major portion of the purchase price through a seller note. The seller note could be structured with contingencies for revenues derived from the largest customers.

With any of these deal structuring techniques, the seller cannot be expected to guarantee the revenue in perpetuity and if the transaction price is based upon retaining one or more key customers, the seller may require more active involvement in maintaining the client relationship during the term of the agreement. Obviously, this brings an additional complexity to the transaction.

In most cases, buyers will look to discount the amount they are willing to pay for a business (with high customer concentration) unless they receive assurances that the risk is low. While the obvious strategy to reduce customer concentration risk is to diversify and increase the business customer base, there are a number of situations where customer concentration either does not pose a significant risk or could be mitigated.

Customer Contracts:

Having a contract in place will not eliminate all of the risk of losing a key customer, but it will provide the buyer with security that the revenue and profits will continue after a change in ownership takes place. When customer contracts are involved, the ability to assign or transfer will be important to understand. In many cases, a stock sale vs. asset sale is elected to preserve these contracts.

Barriers to Entry or Exit:

Businesses could have intellectual property, product expertise, or patents that create competitive advantages barring competition. Others are located in geographically remote areas where the supply benefits discourage customers from changing the relationship. Lastly, there could be significant capital requirements for manufacturing and tooling or agency approvals (pharmaceutical or government contracting industry) that creates a barrier to entry from potential competitors.

Providing a Variety of Products and/or Services:

Having a broad relationship with a key customer where the relationship is not based solely on one product, one location, and one individual decreases the risk that a singular change will fundamentally impact the future revenue stream and continuity of the account.

Economies of Scale or Synergies:

The acquisition may be pursued by a strategic buyer where they are bringing new products/services to the enterprise, a broader geographic distribution footprint, or economies of scale in production. Any of these elements would assist in reducing the concentration of revenue risk that an identified key client would represent to the future organization.

Summary

Businesses which have high levels of customer concentration are inherently risky and it is important for the owner to appreciate this concern from the perspective of a potential acquirer. Ultimately, the buyer seeks only to retain the customers which have contributed to the success of the business and are factored in the valuation and transaction price. From the position of a buyer a few logical questions and concerns would be:
1. How does the value of the company change if a customer representing 10% or more of revenue and/or profits is lost in the first year?
2. How easy would it be for the client representing the customer concentration concern to leave the business?
3. What unique situations exist within the business to preserve the customer relationship in the years ahead?
4. What are the logical steps and corresponding costs to mitigate the customer concentration risk?
5. How do I achieve a win-win transaction? Protecting me, the buyer, against the risk of a near term revenue loss while providing the seller with the proper remuneration for the fair market value of their business?
While the risk may not be able to be totally eliminated, there are a number of situations where customer concentration is more palatable and a proper explanation should be provided to the buyer at the earliest opportunity. Getting out in front of this potential challenge is critical to achieve a win-win deal. When good communication exists, and two fair and reasonable parties are at the table, there are a number of structuring options available, when necessary, to mitigate the risk and negotiate a fair and reasonable transaction price. Obviously, the best approach for a prospective business seller would be to develop and implement plans to reduce any customer concentration elements years in advance of a business exit. Eliminating this type of risk is just sound advice for any small business owner regardless of whether a sale is contemplated.

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Source by Michael Fekkes

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July 25, 2022