Small businesses at risk due to small customer base, study finds

The stability of a substantial proportion of small businesses in Australia is at risk because of dependence on a small number of customers, according to a recent study conducted by small business lender OnDeck.

According to the lender’s survey findings, 71% of small business owners acknowledge facing some level of risk associated with their small customer base. Notably, 10.2% of business owners perceive this risk as ‘extreme’, while 12% view their customer base size as entirely risk-free.

Cameron Poolman (pictured above), chief executive of OnDeck Australia, said the prevalence of small businesses relying on a narrow customer pool – commonly known in the industry as “concentration risk” – brings inherent challenges, particularly if a business encounters the loss of one or more key customers.

“Brokers may find that not all small business owners want to scale their enterprise,” Poolman said. “However, by growing a customer base, a business can significantly reduce the risk of instability that tends to go hand-in-hand with a restricted customer base.”

According to OnDeck, small business funding emerges as a crucial facilitator for customer base expansion, and that brokers can contribute significantly to the stability of their small business clients by providing easy access to streamlined funding mechanisms.

The lender’s own unsecured Lightning Loans, available for up to $175,000, can provide a source of funding for small businesses to broaden their market presence, explore new markets, or grow their customer base through diversification.

“A small business is a valuable investment, and like all investments, an enterprise can benefit greatly from diversification,” Poolman said. “As we head into a new year that may bring difficult trading conditions for some small businesses, it has never been more important for brokers to help their small business clients explore new ways to expand an enterprise’s customer base.

To aid brokers in initiating conversations with small business clients on growing their customer base and reducing instability risks, Poolman suggested five cost-effective strategies, namely expanding product lines, introducing loyalty programs, exploring customer loyalty schemes, leveraging customer data for low-cost direct marketing, engaging with social media, and boosting their online presence.

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