One customer at 35% of revenue doesn’t just risk a customer. It can cost you a full turn of EBITDA at exit.
A sales problem becomes a valuation problem
Owners treat concentration as a sales issue: keep the big account happy and grow the others. What looks like focus to an owner looks like fragility to a buyer.
At exit, it gets priced the day a buyer opens your revenue detail. A diversified business might clear 8x EBITDA. The same business with one customer at a third of revenue might clear 6x to 7x, because the buyer is pricing the risk that the model breaks if that customer walks after close.
Example: a business with $3M of EBITDA. At 8x, that’s $24M. At 7x, it’s $21M. One customer at 35% of revenue can easily account for that $3M difference.
Most owners learn this during diligence, when there’s no time left to fix it.
How buyers look at concentration
Buyers don’t just look at your top customer. They’ll typically review:
- Top customer, top five and top ten as a share of revenue
- Share of gross profit, not just revenue, since big accounts often get better pricing
- Contract terms: length, renewal dates, termination rights and change-of-control clauses
- Relationship risk: whether the account depends on the owner personally
A big customer on a multi-year contract with no change-of-control clause worries a buyer far less than one on a purchase order that can walk any month.
Treat it as a valuation line
- Track your top customer as a share of revenue and of gross profit every quarter.
- Move large accounts onto multi-year contracts before a process starts.
- Move the relationship beyond the owner, with more people on your side talking to more people on theirs.
- Invest in the second and third accounts that change the shape of the revenue base.
The fix takes two to three years. A buyer can apply the discount in an afternoon.
Common questions
What counts as customer concentration?
There’s no single cutoff, but buyers usually start asking questions when one customer is above 10% to 15% of revenue, and pricing it in once one customer is above roughly 20% to 25%.
Can a long-term contract offset the risk?
Partly. A multi-year contract with no easy exit and no change-of-control clause reduces the risk a buyer prices in. A purchase order relationship doesn’t.
Should I turn down a big customer to stay diversified?
Usually no. Take the business, but grow other accounts alongside it, lock in contract terms, and build relationships beyond the owner so the account doesn’t depend on one person.
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