Is business valuation on your mind? Have you considered how cross-selling may be affecting it?
You’ve probably heard the adage that it is far easier to cross-sell to an existing customer a new product than it is to find a new customer. You could save a lot of money by selling to your existing customers rather than gaining new ones.
And if your goal is to grow at a significant rate, then cross-selling makes sense. However, all of that sales growth may not do much for business valuation of your company. If you are cross-sell to existing customers too much, it could make your business far less valuable.
When you cross-sell to a customer with so many products or services that they begin to account for more than 15–30% of your revenue, expect your business value to drop. If a single customer represents more than 30% of your sales, expect an even deeper discount.
Customer concentration is one factor that makes up a business value factor called “The Switzerland Structure” — one of eight drivers that drives your business’s value in an acquirer’s eyes.
To summarise in simplistic terms, the least valuable companies focus on selling lots of stuff to a few people. The most valuable businesses do precisely the opposite: by selling less stuff to more people.
Customer concentration is seen as a significant risk when a potential buyer determines the value of your business. That’s why the most valuable companies are the ones that sell less stuff to more people.
Do you want to improve the value of your business as part of developing your exit strategy?
If so, please contact me at david.rivers@actioncoach.com and I can arrange a FREE valuation for you that will show your businesses score on all eight drivers of company value. You can use these to work methodically grow your business value over the coming months and years.
