Finance
Customer Concentration
The percentage of revenue coming from your top customers, a key risk metric for lenders, buyers, and insurers.
Most banks flag 20%+ revenue from any single customer as concentration risk. Buyers in M&A discount valuations when the top three customers exceed 40% of revenue. SBA lenders may require personal guarantees or reduce loan amounts when concentration is high.
Concentration risk isn't binary; it's a spectrum that affects valuation multiples, loan terms, insurance premiums, and the price the business can command in a sale.
Diversification work (broadening the customer base) often unlocks more value than improving margins.
Common pitfalls
- Measuring concentration by revenue only; concentration of gross profit can be even worse (top customer = 30% of revenue but 50% of margin)
- Counting affiliated entities as separate customers; buyers see through this
- Treating customer concentration as a fixed reality; it's often fixable with deliberate sales effort over 2–3 years
Related service
See fractional CFO servicesHave a Customer Concentration situation in your business?
One team covering bookkeeping through fractional CFO, so the figure you just read about comes out of a ledger you can stand behind.