Concentrations. when one client or customer accounts for 10% or more of your revenue, Customer concentration occurs when the revenue from your top five clients represents 25% or more of your company's total revenue.
What are customer concentration?
- When one client or customer represents 10% or more of your revenue, or when your top four to five clients represent 25% or more of your revenue, you have high customer concentration.
- A company's revenue will be extremely sensitive when it is unduly dependent on a small number of clients or customers. A 10%–25% decline in revenue can push a company from being profitable to breaking even, endangering its capacity to continue operating.
- A concentrated customer base raises the risk for the business's owners, everyone who depends on it, and prospective buyers. Particularly, the level of risk associated with your cash flow will determine how potential purchasers value your company.
- A buyer's rate of return must be higher, which corresponds to a lower value buying price, for them to invest in a company with a concentrated customer base.
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