The investor’s field guide · C
Customer concentration
The degree to which a business depends on a small number of customers for revenue, profit or cash receipts.
Explained by the editorial team
Customer concentration measures dependence on particular buyers. Revenue share is a common starting point, but profit contribution, outstanding invoices and strategic importance can tell different stories. Several legal entities may also belong to the same customer group.
A worked example
One customer accounts for £400,000 of a business’s £1 million annual revenue. That is 40% revenue concentration. If the work has unusually high margins, losing the customer could remove more than 40% of operating profit. If invoices are unpaid, cash exposure may add another risk.
What to examine
Look at contract duration, cancellation rights, renewal history and the relationship with the outgoing owner. Consider whether the buyer can realistically diversify and how quickly costs could fall if sales disappeared. A long relationship can be valuable without guaranteeing future orders. Analyse the underlying dependence rather than applying a universal acceptable percentage; industry structure and the quality of the relationship both matter.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.