Dave,
when you have one customer which provides the majority of your income, you are in a precarious position. I'm in a similar position with one customer providing more than half my income as well. I have an excellent relationship with them which I do my utmost to maintain.
I generally work directly with them but on several occasions, I was asked to work with one of their general contractors on a project. We had done work with this same GC before so that was no problem. We did the project, submitted the bills and heard nothing. At the 90+ days point, not one single phone call was returned and no mail was answered and eventually the phone line was cut off. I asked the guy I normally work with what was going on with "so and so" contracting company... His reply.... Oh no, don't tell me they haven't paid you either.... seems they went bankrupt and didn't pay a single contractor on the job which was several hundred thousand dollars. My contact person with the company asked me to send him the bill and they paid it. He told me, I was too valuable a resource to have me mad at them and he made sure I got paid properly. When they have a problem, and need help, they need to know they can call me for assistance or advice. I've had phone calls for help on the side of a mountain while skiing. I took 15 minutes to help them out and resolve the issue before I completed my run to the lodge.
It's a good idea to find other customers who can use your particular skill set to augment your customer base. I know it's easy to keep that one customer and rationalize things.... but eventually it comes back to bite you.
In the case of this customer I have.... when I first started with them, we did a several hundred thousand dollar contract right out of the gate. Several others followed through the years and periodic repair, replace and upgrades kept things rolling nicely. We started with their 23 facilities so there was a constant flow of repair work to do. Through the years, they let leases expire and sold those assets to other similar companies. Some of those retained our services and others did not, opting to do their own "in-house" repairs. I happened to be in one of those places a year or so back and the system we installed had been let go and was in dire need of a complete upgrade at that point.
Our original customer is now down to 8 or so facilities left. We just submitted 3 proposals for sizable upgrades and one came in on the fax 2 nights ago. As I get older and closer to retirement.... (I'll be 62 this year) ... I don't mind that things are slower than they were 10 years ago. My existing residential customers also contribute to the work load.
We also do work directly for the factory that makes the equipment, and they have dumped a really sizable project (45 facilities) in our lap. We still do repairs and service work for them.
I work alone, so when I close the doors, the business assets will be sold to the highest bidder. If I had employees, perhaps I would be working to find other customers more aggressively.
Depending on your situation, spending the time to find and attract other customers so that you don't rely on just one for the majority of your income may make sense. Pushing that thermonuclear button should be done only as a last resort. Try the negotiation tactic first. That letter you mentioned would be a good start. Always remember to give them an easy to see path out of the situation. Make it a "WIN/WIN" and hopefully you can continue to do business with them for years to come. Because, while having one customer provide 50%+ is a precarious position, it's also less of a hassle because you're dealing with fewer people.