Customer Concentration Risk: Test Your Exposure

Measure customer concentration across revenue, contribution, unpaid invoices, and committed capacity. Then model the loss or delay of a major account using actual payment dates and costs that can realistically change. The useful question is how long the business can absorb the disruption, and which decisions reduce that exposure before another large commitment is made.

Start with one account view, not a single percentage

A revenue concentration measure shows an individual customer's share of total sales over the same period. Calculate it by dividing that customer's revenue by total revenue. Group related entities when their purchasing decisions depend on the same organization. Otherwise several account names can conceal one commercial relationship.

Use a consistent period and review the direction of change. A temporary project spike needs a different conversation from a relationship that repeatedly dominates the order book. BDC's acquisition due diligence guidance specifically identifies customer concentration as an issue to investigate, including the relationship and the likelihood that purchasing will change. An existing owner can ask the same questions before budgeting for another year.

Sources: BDC: Conducting commercial due diligence.

Compare revenue exposure with contribution and collection exposure

Add the direct delivery costs attributable to the account, the remaining contribution, unpaid invoices, and any customer specific commitments. Keep revenue, contribution, and receivables in separate columns. Each answers a different question: how much work could disappear, how much support for overhead could disappear, and how much already earned cash remains outstanding.

Avoid presenting allocated overhead as an immediate cash saving. Rent, software commitments, and salaries may continue after an account leaves. Ask the finance and operations owners to distinguish costs that stop immediately, costs that change later, and costs that remain. Business Queensland's financial risk guidance highlights late customer payments and the need to anticipate their effect on obligations.

Sources: Business Queensland: Managing financial risks.

Model three concrete account disruptions

Build separate scenarios for a delayed payment, a reduction in future orders, and a full loss of the account. These are planning cases, not predictions. Use dates that reflect invoices, payroll, supplier terms, and contract commitments. Do not assume that losing future sales also means losing every amount already owed.

For each scenario, identify the lowest projected cash balance, the date it occurs, and the obligations that cannot be postponed without consequences. If replacement sales are part of the response, give them a realistic decision and collection timeline. A proposal in progress is not available cash. Keep a separate version without replacement sales so the downside remains visible.

Look for operating dependence behind the account

Financial exposure can be amplified by how the work is delivered. Review dedicated staff schedules, specialized equipment, supplier minimums, training, integrations, and account specific procedures. Ask which resources could serve another customer and which would need additional time or spending before they become useful elsewhere.

Have the account owner identify renewal dates, notice periods, the customer's decision makers, and evidence of future demand. A good relationship is useful, but it does not replace a clear view of contractual commitments. Have qualified support review legal rights rather than treating an internal scenario as permission to terminate or change an agreement.

Choose a response the team can actually execute

Do not treat a large customer as automatically undesirable. The relationship may have strong economics and fit the business well. Instead, connect the exposure to an action: tighten invoice follow up, clarify upcoming demand, stage additional hiring, or develop qualified opportunities outside the account. Assign an owner and a review date to the selected action.

Bring the account view into the next operating review before approving spending that depends on continued demand. Recheck it when payment behavior, renewal expectations, or delivery commitments change. The objective is a decision with evidence behind it: accept the exposure knowingly, reduce it, or delay a commitment until the business has more room to absorb disruption.

Name the account and the decision being reviewed.
Separate booked sales, expected work, and outstanding cash.
Record the downside assumptions and their owners.
Choose one action and the evidence that will trigger another review.

Common Questions

What percentage of revenue is too much from one customer?

A revenue percentage alone does not establish an acceptable exposure. Consider contribution, contract terms, collection timing, fixed commitments, and how quickly the business could replace the work.

Should customer concentration be measured by revenue or profit?

Review both, alongside receivables and committed capacity. Revenue shows sales dependence, while contribution and cash timing show different parts of the potential financial impact.

Should a business refuse a large new customer?

Evaluate the opportunity and its downside before deciding. Clear terms, staged commitments, realistic capacity, and a wider pipeline may make the exposure more manageable without refusing valuable work.

Customer Concentration Risk: What If Your Largest Account Leaves?