What it is
What share of total revenue the business's ten largest customers account for: a single number that says a lot about how much of what you're buying depends on relationships you don't control yet.
Why it matters
If a handful of customers can walk away, especially right after an ownership change, when they have every reason to reevaluate who they're buying from, the revenue you paid for can evaporate fast. Lenders discount concentrated books for the same reason: a business standing on two or three big accounts isn't nearly as reliable as one spread across a hundred smaller ones. Concentration above roughly 10-15% in any single customer is where buyers and underwriters typically start asking harder questions.
What to look for
- Any single customer above 10-15% of total revenue
- Written contracts versus informal, handshake relationships with the largest accounts
- Whether the relationship with a top customer runs through the company or through the owner personally
- Any recent loss of, or near-loss of, a major account, and why it almost happened
This guide is for informational and educational purposes only. It does not constitute legal, tax, financial, investment, or lending advice, and is not a substitute for advice from a qualified attorney, accountant, lender, or other licensed professional.