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Think big, they say. After all, why would anyone turn up their nose at a huge slice of business? Consider the revenue, the prestige! Maybe even take a moment to bask in the envy of your competitors.

But there are potential drawbacks to weigh up as well. Big client contracts can be risky, especially if they cause an imbalance to your business – including the classic danger of too many eggs in one basket.

In recent years, a number of print businesses have plunged into serious financial problems following the loss of a major contract on which they were over-reliant. Some even going to the wall. Others have had to slash headcount in the wake of a big account walking out the door. Unfortunately, this was recently the case for Delta Group which reportedly had to make more than 100 staff redundant after losing the multimillion-pound contract for supplying POS materials to supermarket giant Asda.
Others still have lost money in failed attempts to land big chunks of work. De La Rue, for example, last year wrote off £4m in costs incurred in a failed bid to retain the huge £490m UK passport contract.

What, then, are the pros and cons of big contracts? And what steps should you take to ensure the Champagne feeling that comes from securing a big contract doesn’t turn into a dreadful hangover for the business?

Webmart founder Simon Biltcliffe says the best mitigation strategy is to have plenty of midsize customers and not become over-dependent on a single account. In his view, a 20% proportion of revenue should be the “absolute maximum” exposure, although around 10% is preferable. “It’s just common sense,” he elaborates. “Don’t become over-dependent or believe it will carry on forever; no contract is forever, there are a million reasons that you can lose them. So be mindful of: if it went, what would you do? Build that into your planning. It’s not a disaster recovery plan but a similar approach.”

Seek sustainability

As BPIF CEO Charles Jarrold observes, sometimes a big contract win represents the difference between healthy profits versus considerable losses. And if the contract is secure for a number of years, taking it on may make plenty of sense.

“The important point though is for the business to take a moment to think about the consequences medium term,” says Jarrold. “What’s the impact on the work mix? What’s the pricing like? What demands will be placed on the business and will this impact on other customers? What can be done to reduce the impact on the business should the contract come up for renegotiation in future. Try to think beyond the obvious.”

Running a large account as its own P&L offers some future-proofing advantages. Hobs Group CEO James Duckenfield says: “Identify who is associated with delivery in a clear way so that in the event the contract moves the team can move with it.” He also advises keeping investment cycles in step with the contract lifecycle.

Ryedale Group managing director James Buffoni says his largest single customer accounts for less than 10% of revenue while the top 50 customers combined contribute around 80%. Generally, he believes, a balance should be struck by retaining small/medium clients so that you remain viable in the event of contract losses. “If larger contracts provide a satisfactory financial arrangement with realistic deadlines, controlled reordering and timely communication, it is worth investing resources – for example, account management,” says Buffoni. “But obviously, as we’ve seen in the news, all eggs in one or few baskets can be a risky business.”

Paragon Customer Communications client development director Nick Barbeary notes market conditions are changing dramatically. As clients develop, there is a need to mirror their requirements and invest to meet those needs. What that means for a business of significant scale such as Paragon, he argues, is that it “cannot afford not to invest” to attract large scale quality end-user accounts.

To create new relationships of this kind calls for a more formal strategic environment. Arguably, not all printers will be comfortable with the notion of working in this way.

“For a business to invest to attract these big accounts you need firstly the right mindset, to create the environment of strategic thinking and consultancy. Understand your clients’ challenges and be able to articulate the solution back to them in a professional manner supported by financial models and resource requirements,” says Barbeary.

“This resource is critical and is all about employing the right people that get it and know-how to deliver true value to support clients’ business objectives. In a marketplace that is delivering less daily tactical opportunities within the traditional sales environment, only companies that think differently will survive and move away from fishing in a smaller and smaller pond as their horizon expands.”

BCQ Group chairman Richard Knowles sees signs of upheaval and opportunity in the print management market centred on big chunks of business. Print managers, Knowles says, thrive on large, high-profile contracts and have done a great job, at the expense of traditional printers, in capturing a large chunk of the major contracts placed in the UK.

“However,” Knowles expands, “as the print management model becomes ever more mature and larger organisations look for further economies in the way they use print in their businesses, they may have lost the skills and expertise internally to buy print well and there will be opportunities for direct printers to both bid for and win contracts on the basis of a risk-free, comprehensive, ‘in-house’ service offering at competitive and most importantly, sustainable rates.”

A large account win may also come with some tricky employment law implications. Quite a few businesses have been caught out by Transfer of Undertakings (Protection of Employment)
regulations, better known as TUPE, which may mean you are legally obliged to employ members of the team that previously looked after the contract.

TUPE applies if an “identifiable economic entity” is being transferred. If there is a previous contractor who had a supply and/or service contract which is now being transferred, TUPE will apply. If previously the work was contracted on an ad-hoc basis as and when required then TUPE may not apply. So when taking on a big contract, the supplier should check carefully what the exact situation was for supply of the goods and services. If the contract is just for the supply of goods for the customer’s own use, then TUPE will not apply.

From an employee perspective, TUPE regulations are designed to ease minds over job security concerns. But while an employee’s rights are protected when a contract is transferred, the move to another employer is not necessarily a desirable outcome.

“Freedom of choice is taken away from the candidate, so although it is protecting some rights, it is taking away others,” notes Harrison Scott joint managing director George Thompson. “Someone could perhaps be transferred to a company they don’t want to work for or have worked for in the past and have had a bad experience with.”

Switching back to the employer’s perspective, BPIF head of legal Nicola Langley is keen to underline the fact that print businesses must be mindful that big contracts come with risks as well as rewards. She advises poring over the nitty-gritty of the agreement so as not to become trapped in an unprofitable arrangement. “If the contract is for a fixed term, typically three or five years, then I would recommend that you build in a mechanism for price increases during the term,” says Langley. “You may also want a notice provision during the term or ‘break clause’ so that in the event that it becomes unprofitable you can get out of it before the end of the term.”
With a big contract, it’s also advisable to pay attention to the liability clause. Make sure this is limited or capped and that your insurance provision covers your total potential liability under the contract.

In the heady glow of closing in on a substantial new contract, it’s easy to push thoughts relating too much further down the line from your mind. Yet, before you sign up, consider carefully what will happen when it ends. “If the type of goods that you are supplying may be changed or developed during the term, you should also consider who will own any intellectual property rights in the design of the goods, and make provision for that in the contract,” adds Langley. “Finally, do ensure that the contract specifies the legal jurisdiction for any disputes or claims if your customer is located in another country. It will be more difficult and expensive if you have to bring any claim in a foreign jurisdiction.”

Arduous angling

There’s a huge amount to get right if you’re looking to land a big fish. Paragon’s Barbeary takes the view that it’s only possible to land major contracts when everything within the process fits: people, solution, service model, chemistry, appetite for change, previous experiences and future requirements must all match perfectly with stakeholders, procurement owner and business objectives.

“Never under-estimate how hard this is to achieve or how long this will take to land,” says Barbeary. “The journey can be a long one and does not finish when you sign the contract. It is an ongoing approach that, once mastered, drives further success that enables your business to plan on more predictive revenue streams. Once a contract is signed it then provides the perfect cross-selling platform.”

The industry has to some degree moved away from huge volume contracts as the nature and use of print changes to a more targeted model. However, most printers do have key clients who are critically important to the business. And, in a world where excess capacity is prevalent, there’s a strong temptation for competitors to try to win work by offering highly competitive prices.