Customer concentration measures how much of your revenue sits with your largest customer. Above roughly a quarter, losing them is not a bad quarter — it is an emergency.
It is also the fastest way to lose a business valuation, because a buyer discounts heavily for it.
Causes
Nobody decides to become dependent. A customer grows, they are easy to serve, they refer more work, and serving them is more profitable per hour than finding new ones.
Every individual decision was right. The position at the end of them is fragile.
The two ways out
Grow the rest, which is the healthy version and the slow one.
Reduce the largest, which is faster and costs revenue you currently have.
Almost always the answer is the first, which means this is a twelve-to-twenty-four month project rather than a decision. That is the argument for starting it while the relationship is good rather than when it wobbles.
Growing the rest
Find out where your good customers came from and do more of that specifically. See marketing performance.
Ask for referrals from the concentrated customer. Counter-intuitive and effective — a large happy client knows others like themselves.
Target the same profile deliberately. If one property manager works, others will.
Raise your minimum job size rather than chasing volume, so new customers are worth having.
While you are still exposed
Get the terms in writing. Concentration plus a handshake is two risks.
Watch their payment behaviour closely. A large customer paying slower is an early signal of their trouble becoming yours — see days to get paid.
Hold more reserve than you otherwise would. The right level of strategic reserve is higher for a concentrated business.
Do not build capacity solely for them. Vans and staff hired for one client become fixed costs when that client leaves.
Typical values
No single customer above about 15%, and the top five below half. For a business serving households that happens naturally; for one serving other businesses it takes deliberate work.