Customer concentration: when one client is really the whole business

How to measure it in twenty minutes

Ask for revenue by customer for the last three years — not a customer list, the amounts. Then look at three things: the share of the largest customer, the share of the top five, and how those shares moved. A top customer growing from 12% to 34% over three years is not stability; it is dependence forming.

If the seller cannot produce the report, that itself is a finding. Any accounting system generates it in one click, so the answer is either "here it is" or "we don't track that" — and the second answer tells you how the business is run.

Why buyers and lenders care

Buyers and lenders commonly start asking hard questions when a single customer passes roughly 10–20% of revenue, and treat anything above a third as a structural issue rather than a detail. That is market practice rather than a published rule, and it varies by industry: a business with three institutional clients on multi-year contracts is a different animal from one where a single retail account can leave by email.

The reason is arithmetic. If one customer is 30% of revenue and leaves, the revenue falls 30% while most costs stay — and the profit that services your loan can disappear entirely. That is why debt-service coverage is stress-tested against losing the largest customer.

The questions that matter more than the percentage

• Contract or habit? A signed agreement with notice periods, or twenty years of goodwill and a standing order?
• Whose relationship is it? If the owner golfs with the client's founder, the relationship is not being sold to you. Ask who the customer calls when something goes wrong.
• Is it assignable? Many contracts require consent on a change of ownership — in an asset sale that consent must be obtained, not assumed.
• How profitable is it really? Large customers negotiate. The biggest account is sometimes the least profitable one, and its loss is survivable; check margin by customer, not just revenue.
• When was it last re-tendered? A contract up for renewal three months after closing is your problem, priced as if it were not.

Structuring around it

Concentration rarely kills a deal on its own; unpriced concentration does. The usual answers are a lower multiple, a seller note with offset tied to the customer staying, a transition period in which the seller introduces you personally, or direct contact with the customer before closing where the seller permits it.

Questions buyers ask

How much customer concentration is too much?

There is no published rule. In practice buyers and lenders start probing when one customer exceeds roughly 10–20% of revenue and treat a third or more as a structural risk that changes price or deal structure. What matters as much as the percentage is whether the relationship is contractual, assignable, and independent of the departing owner.

How do I check customer concentration?

Ask for revenue by customer for three years, in amounts rather than names if confidentiality is an issue. Look at the largest customer's share, the top five combined, and the trend. Then check whether those contracts are assignable and who inside the customer actually holds the relationship.

Related

• Debt Service Coverage Ratio (DSCR) — DSCR is the cash a business produces divided by the loan payments it owes.
• Asset sale vs stock sale — In an asset sale you buy the things the business is made of and leave most of its history behind.
• Seller note (seller financing) — A seller note is the portion of the purchase price the seller agrees to be paid later, with interest.

Checking a real deal? DealLoupe reads the documents a seller gave you and reports the red flags, the gaps and the questions to ask — before you spend anything on due diligence. See what a pre-screen costs →

Last updated: 2026-08-22