When Cross-Selling Too Much Hurts Your Business

When Cross-Selling Too Much Hurts Your Business

As you know, it is far easier and efficient to cross-sell a new product to an existing customer than it is to market and find a new customer for that product.

If you are looking to just grow your top line revenue, then cross-selling is a very effective technique. In fact, with one of my clients, cross selling has been an effective tool in growing both his revenues and profitability as there was “low hanging fruit” to harvest in the cross selling. 

However, you do have to be mindful as to the extent of your cross selling and how it affects your revenue diversification. In some instances, if you cross-sell your existing customers too much stuff, it could make your business far less valuable.

How can Cross Selling make my business less valuable?

If all your revenue growth is simply cross selling to your existing customer base, and you make no move to diversify your customer base with new ones, than you might begin to find that certain customers begin to account for more than 15–30% of your revenue.

In that case, due to the risk of customer concentration, expect your value to drop. If a single customer represents more than 30% of your sales, expect an even deeper discount.

The simple reason is that businesses get discounted if any one customer, supplier, or employee has too much influence over the company’s profitability and prospects.

A general rule we have seen is that the least valuable companies tend to 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.

How 3D4Medical Made the Switch

As an example, let’s look at the medical technology firm 3D4Medical. Founded in 2004 by John Moore, the company built 3-D models of the human body, photographed them, and sold or licensed their images to textbook publishers. 

By 2010, 3D4Medical was selling images to a handful of large publishers around the world. Then the recession hit, severely impacting the entire publishing business. 

To make things worse, new generations of students increasingly wanted to learn online, rather than through textbooks. The advent of inexpensive digital photography, and the resulting increase in competition for the same customers, also didn’t help Moore. 

Moore had built a successful company on a handful of customers, but when that segment began to dry up, so did his business. Despite working harder than ever, Moore’s revenue plateaued for four straight years. Instead of punching through to the next level, Moore had his hands full just keeping his company going.

But while Moore had relied on too few customers, he still had something no one else had: thousands of 3-D models of the human body. 

Then Moore had an idea. 

He decided to re-purpose his 3-D images into a mobile app that medical students could use on their phones. Moore expanded the idea to include professors and medical professionals, who could use his 3-D images on an individual basis to learn, teach, and share with patients and students. 

By 2019, 3D4Medical had become the biggest producer of medical apps on every app store. The company boasted over 300 of the top universities in the world as clients. Their app served 1.2 million paying customers and had 25 million downloads. 

Thanks to having a diverse set of customers, Moore sold 3D4Medical in 2019 for $50.6 million. 

The takeaway? 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.

How does your Company score on not being too reliant upon any one customer, supplier or employee? Take the free assessment at Sophiall and schedule your free initial consultation.

True Freedom comes from Owning a Business that is Valuable, Scalable, and "Sellable".

Find out how other Entrepreneurs and Business Owners are driving up the value and independence of their companies. Get the best insights plus case studies, tools and resources straight to your inbox.