Customer concentration, explained simply
Buyers assess the share of revenue from the top one, five and ten customers, the trend over three years, and the contractual position: term, renewal dates and change-of-control rights. A large share on a short or terminable contract is the combination that most affects price.
US public companies must disclose any customer that provides 10% or more of revenue, which is a useful reference point.
Share of revenue by customer
IllustrativeAlder Creek Manufacturing, FY2025 revenue of $42.0 million
Customer A’s contract can be cancelled if Alder Creek changes owners.
Worked example
| Customer | Revenue ($m) | Share |
|---|---|---|
| Customer A | 9.2 | 22% |
| Customer B | 5.0 | 12% |
| Customer C | 3.6 | 9% |
| Customer D | 2.9 | 7% |
| Customer E | 2.4 | 6% |
| Top five | 23.1 | 55% |
| All others | 18.9 | 45% |
Alder Creek Manufacturing, Inc. is a fictional company. All figures are illustrative.
Customer A’s contract can be cancelled on a change of ownership. A high share combined with weak contract terms is the principal risk.
How buyers protect themselves
- Require renewal of the key contract before closing
- Reduce the multiple
- Tie part of the price to an earn-out
- Hold part of the price in escrow
Why it matters in a deal
Concentration is one of the most common reasons for reduced valuations in lower middle market transactions.
Red flags
- A single customer above 10–20% of revenue
- Key customers with no written contract
- Heavy discounting to the largest customer