Posts Tagged ‘analysis’

Customer concentration is a major issue when more than 10% of revenues come from one customer or when more than 25% of revenues come from the top five customers.

This situation may create several major concerns to prospective buyers. The biggest one is that only one or two decisions from customers can turn the business from profitable to unprofitable. From the buyers’ viewpoint, this becomes much more likely after the seller leaves the business.

Buyers will typically discount the amount they are willing to pay for a business with high customer concentration by 30-50%. Worse, many buyers decide not to make an offer at all if the customer concentration is too high.

Sellers who face this issue must invest the time and money in sales to increase the number of customers and to find ways to increase the revenues to other customers.

Look closely at the profitability from top customers and make changes as appropriate.