concentration risk
Also called: customer concentration, revenue concentration
The danger of depending on one or a few customers for a large share of revenue: if such a customer leaves, cuts volume or presses on price, the business has little room to say no. It is tracked as the largest customers' share of revenue, with an internal limit that triggers action.
Concentration risk is the danger of depending on one or a few customers for a large share of revenue and margin. If such a customer leaves, cuts volume or delays payment, the whole business feels it; and even while it stays, it has bargaining power: requests for discounts, longer terms or custom work are hard to refuse when saying no feels dangerous.
Measure it as shares, not feelings: the largest customer's share of revenue and of contribution, the top three together, and what losing the largest would cost a month. Check both revenue and contribution, because a customer on a discount or with extra service has a smaller share of margin than of revenue. Look at the shares over time, not in one month: when new customers start on different dates, who is "too big" changes from month to month.
The remedy is to become less dependent, not less close. Turning down a good customer's growth to improve a ratio is usually the wrong lever. Grow the rest of the base, make the big account sturdier (more contacts than one champion, results the budget owner sees, a renewal conversation started early) and price custom work instead of giving it away. A team may set its own limit, such as no customer above a quarter of revenue, as a trigger for action; it is a house rule, not a universal benchmark.
Example
In March 2027 Klasna for Teams billed 790 lessons at 800 UAH: 632,000 of revenue and 267,810 of contribution (339 a lesson). Veloria took 300 lessons, 300 ÷ 790 = 37.97% of lessons, revenue and contribution alike, since every client pays 800.
Losing Veloria would cost 300 × 800 = 240,000 of revenue and 300 × 339 = 101,700 of contribution a month (1,220,400 a year). After Teams' own payroll of 150,000, March's contribution would fall from 117,810 to 16,110.
But March is a snapshot:
From April Cobalt is the largest, and from June the three new clients together are 70.12% of lessons. Marta's house rule is that no client should be above 25%. For Cobalt's 450 lessons to be at most a quarter, Teams needs 1,800 lessons a month: 160 more than June with Orchid, or 560 more if Orchid's contract, still with its lawyers, doesn't sign.
Common mistakes
- Judging from one month. Start dates move the shares; look at the next quarters before concluding who is too big.
- Checking revenue only. A discounted or high-service client's share of contribution can differ from its share of revenue.
- Refusing a good client's growth. Grow the rest of the base instead of turning down healthy volume.
- One contact inside the big account. If the champion leaves, nobody there knows you; build more threads through them.
- Treating the limit as a law. A 25% ceiling is a house rule that triggers action, not an industry standard.
Learn it in the course
- A key account plan and concentration risk · Map a big client's people, goals, usage and next step, measure how much of your revenue and margin it is, and lower that dependence without pushing the client away.