Customer concentration

Customer concentration measures exposure, but its significance depends on more than the largest account’s revenue share. A customer may generate a disproportionate share of profit, occupy scarce production capacity or owe a large receivable balance. Several apparently separate customers may also depend on the same industry spending cycle. Diversification by name does not necessarily mean diversification of economic risk.

One source describes losing a customer associated with 20% of revenue and all profit shortly before a deal closed. A later account uses a different revenue range and may describe the same event, but the collection does not resolve that identity. The reliable teaching point is that a revenue decline can remove a much larger fraction of earnings when costs cannot fall at the same speed. Watch source

Review contract duration, renewal conditions, customer profitability and the practical ability to replace lost work. Stress both revenue and collection delays. The collection also describes heavy steel-group exposure to water-sector investment cycles, showing why shared end-market demand matters. A longstanding customer relationship can support confidence but is not a guarantee of renewal. Neither the source’s percentage flags nor its anecdotes establish a universal acceptable concentration limit. Interpret the dependency alongside liquidity, debt service and the buyer’s ability to manage a transition. Watch source Watch source

Follow the connections

Due diligence · Cash flow · Target selection.

Continue in the course: Diligencing the business.