Customer concentration refers to how much of your total sales come from any single buyer. It is one of the first metrics to review when considering the health or resilience of your farm, and a key insight as you are looking for opportunity to scale. (Hint: Rooted’s Buyer Sales Report takes care of this one for you!)
Why Buyer Concentration Matters
Customer concentration matters more than many of us realize. If a handful of buyers represent the bulk of your sales, your business may be more exposed than it might feel on a good week. Buyers change. Budgets shift. A head chef moves on, a florist closes, a school district updates its purchasing policy. It's the classic problem of putting too many eggs in one basket – when too much of your revenue comes from just a few relationships, any one of those changes can hit hard.
A healthy concentration is generally one where no single buyer represents an outsized share of your revenue. As a rough benchmark, if one buyer accounts for more than 25-30% of your total sales, that's worth paying attention to. A distributed buyer base allows your business to absorb change without those shifts becoming a crisis.
Quantify Your Buyer Concentration
Rooted Analytics tools allow you to look at sales by each of your buyers and analyze your sales over a given time period. You can quickly review concentration by week, by month, by quarter, or any custom date range desired.
Click Analytics on the lefthand menu to visit different aspects of your data. Report will give you an overview of your sales reports by type of buyer. It is here that you can determine your buyer concentration.
Common Findings
Two common findings from reviewing these data include 1) outsized exposure (e.g. a loyal buyer making up 30+% of your sales) and 2) a large number of relatively low-volume buyers (this is often called the “long tail” of your customer base).
We (almost) never want to reduce sales to those top customers, but they are a strong signal that we might need to make some changes to protect our farms.
One step that we can take is to look at the buyers in your “long tail” – the ones sitting at the lower end of your list, the ones who placed a small order or two but never grew into regular accounts. It's easy to overlook them when you're focused on your biggest buyers, but that group is actually a roadmap for outreach. They already know you. They liked what they saw enough to place an order. A personal note, a quick call, a heads-up about what's coming in your next harvest is often all it takes to bring them back and start building something more consistent.
The same goes for buyers who have gone quiet altogether. Your data can show you who previously ordered regularly and has since dropped off, giving you a focused, specific reason to reach out, rather than a cold pitch.
What It Means for You
First things first, you should understand if you have a problem with customer concentration, or if your sales are well-balanced across your buyer base. This initial analysis may validate that you have managed to build a customer base that is neither overly-concentrated, nor overly distributed.
However, if you’re like many growers, you may see that the majority of your sales rely on purchases from a small subset of your buyers. If this is the case, do two things:
- Understand what is driving your top customers so that you can maintain their loyalty to your business. You can’t ignore them since they are supporting most of your business right now!
- Reach out to customers who are not buying as much. While it may seem like a lot of effort to contact customers who are not buying as much from you, this is how you foster a growing customer base. Understand what they need, and try to address their needs the best you can. And importantly, keep the relationships active!
Build a Balanced Business
Your business will be more resilient if your sales are diversified across a broad customer base, rather than concentrated with just a few major buyers. By using Rooted’s analytics tools, you can do this efficiently, allowing you to spend less time on business administration, and more time doing what you love!
Learn more about Rooted analytics by watching the analytics tutorial available in FAQs on your account.