Situation: Your staffing company has finally broken through the national’s “glass ceiling” and landed a major account with guaranteed high volume business for the next year. Your staff is spending most of its time complying with the various specifications of the agreement while interviewing applicants to fill the order. This is an immediate boost for your brand name and bottom line. After the exuberance ends and you have time to focus, what will all this mean to your company in the long-run?

Usually, it means one of two things. 1. If managed correctly, this can be a springboard to bigger and better things for your company or 2. It can signify trouble ahead for your company in different ways.

How can landing a profitable, large account with a seemingly credit worthy company be bad for business? Easy. The following case studies highlight 5 potential pitfalls:

 Sales Complacency

 Increased Fixed Cost

 Increased Variable Cost

 End-User Insolvency

 The Price Squeeze

Case Study #1 Sales Complacency, Increased Fixed Cost and the Price Squeeze

I first started working at Damian Services Corporation in the early-nineties. One of my first accounts as an account representative was a start-up company called Northeast Temporaries located in Pennsylvania. After about two months in business they landed an exclusive contract with Dial Corporation. This was a strong financially viable company. The contract called for good margins and our client had about 100 people working there every day for one year. They added internal infrastructure in order to service this account. What they did not do is grow their customer base – which we strongly advised our client to do.

When the contract came up for renewal, Dial Corporation demanded a significant drop in price. Our client could not profitably meet the new pricing terms and was faced with losing money on this account – even with the large volume of business. As a result, Dial Corporation chose a new vendor. Saddled with the loss of their main customer and now under utilized infrastructure, Northeast Temporaries quickly ceased to exist. This is a great example of Sales Complacency, Increased Fixed Cost and The Price Squeeze.

Case Study #2 Increased Variable Cost

This next scenario involves one of our current clients. They landed a large account with a major bank. They placed in excess of 150 employees a day in the bank’s processing center. This is an established staffing company that did not add a lot of fixed costs and did continue to grow their customer base. As the banking crises in the U.S. spread, this large bank laid-off all of its temporary personnel. Since our client could not place all of these employees in other positions, the laid-off employees applied for unemployment benefits which they were entitled to receive.

The next year our client’s unemployment rate more than doubled for all its remaining employees due to this one big layoff. This is an example of increased variable costs resulting from the loss of a major account.

Case Study #3 - End-User Insolvency

Have you ever had an order land in your lap that was seemed too good to be true? Consider this: A decent-sized homebuilder in central California needed approximately 25 construction laborers per day. They were willing to pay double the going rate in order to get them. We ran a Dunn & Bradstreet report which came back ok but really did not warrant the kind of credit that this customer required. Considering the D&B report, amount of potential receivable dollars involved and the inflated bill rate for the laborers, we advised our customer against filling the order.

They did so anyway. Two months later, the end-user declared bankruptcy and our client lost over $100,000 of their own money. If the client did not have other customers, they would have been out of business.

Luckily during our 27 years of exclusively serving independent staffing companies, situations like this occur very rarely with our customers. At Damian, we put our clients well being above making a quick dollar from unprofitable business. Many times, we have advised our clients not to have too much concentration with one customer and to avoid taking low-margin, high-risk business. The old saying “Don’t put all your eggs in one basket” very much applies to your businesses long term survival.