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 top-3 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
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