Customer concentration

Definition

How much of the revenue rides on the largest customer or few.

Why It Matters

The larger the share one customer carries, the more of the price rests on a relationship you do not have and cannot inherit by contract. This site's Deal Screener flags a largest customer at 15% to 30% of revenue and treats more than 30% as a reason to walk, a screening convention and not a lender's rule. Diligence should map the top few accounts by revenue and by tenure, since one account that can leave on thirty days' notice is the risk the multiple is quietly paying for.

In numbers: A $2,000,000-revenue company whose top customer is $700,000 of it is 35% concentrated, past the screener's 30% line, so a buyer models losing that account in year one against the loan payment before deciding what the business is worth.