Customer Concentration Risk
See how much of your revenue rides on a few customers, your HHI, and what concentration costs you at sale.
Example scenario—not a forecast or verified benchmark. Enable JavaScript to edit inputs, view charts, save locally and export your analysis.
Example inputs
- Total annual revenue
- 4,000,000
- Annual EBITDA or SDE
- 600,000
- Valuation multiple you'd otherwise expect
- 4
- Contribution margin on customer revenue
- 35
- Top customers by annual revenue
- [{"name":"Customer A","revenue":1000000,"contracted":false},{"name":"Customer B","revenue":480000,"contracted":true},{"name":"Customer C","revenue":320000,"contracted":false},{"name":"Customer D","revenue":200000,"contracted":false},{"name":"Customer E","revenue":160000,"contracted":false}]
Example results
High concentration: Customer A is 25% of revenue (top 5: 54%, HHI 874), implying a roughly 12% valuation haircut, about $288K.
- Largest customer share
- 25%
- Estimated valuation haircut
- $288,000
- Concentration index (HHI)
- 874
- Top 3 share
- 45%
- Top 5 share
- 54%
- Earnings lost if largest leaves
- 58.3%
- Customers above 10%
- 2
What stands out
Customer A is 25% of revenue
Losing it removes about $350,000 of contribution, roughly 58% of your $600,000 earnings, before any cost cuts.
1 customer above 10% with no multi-year contract
Customer A can leave on short notice.
Concentration likely costs about $288K of enterprise value
A 12% haircut on a $2.4M valuation, or a buyer pushing part of the price into an earnout tied to Customer A.
Next actions
- Get Customer A below 15% of revenue by adding about $2.7M from other customers (or growing them faster than Customer A).
- Convert Customer A to a 2-3 year agreement with renewal terms; contracted concentration is discounted less.
- Assign a second relationship owner (not the founder) to every top-5 account and track account health monthly.
- Build a new-logo pipeline target: no single customer should exceed 10% of revenue within 24 months.
Model assumptions & limitations
- Rule of thumb: valuation haircut scales with the largest customer's share, from 0% under 10% to about 30% at 50% and about 45% at 100%. Real buyers vary widely and may use earnouts instead.
- A multi-year contract with the largest customer reduces the haircut by about 30% in this model.
- Revenue not listed is assumed spread across many small customers (adds almost nothing to HHI).
- Profit impact uses your contribution margin and ignores any costs you could cut after a loss.