January is when many owners quietly start taking stock.
The business looks strong.
Revenue is solid.
Margins are healthy.
But if you’re honest, there’s a number you avoid looking at too closely:
How much of your revenue comes from your top five customers.
On the surface, concentration doesn’t feel like a problem.
Big customers feel like validation. They’re stable. They pay on time. You know them well.
From the inside, it feels efficient.
From a buyer’s perspective, it’s something very different.
It’s risk.
And risk is always priced in.
Why Concentration Feels Safe to Owners — and Dangerous to Buyers
Most owner-led businesses grow through focus.
You land a few great customers early.
You serve them well.
They expand.
They refer you.
Over time, they become a meaningful percentage of revenue.
From your seat, that feels earned. Logical. Even smart.
But buyers don’t evaluate businesses based on history.
They evaluate them based on what could go wrong after ownership changes.
And concentration introduces a simple, uncomfortable question: “What happens if one of these customers leaves after the sale?”
If losing a single customer materially impacts cash flow, growth plans, or debt service, buyers don’t see upside — they see fragility.
That fragility directly affects valuation.
How Buyers Actually Think About Customer Concentration
Buyers don’t ask, “Are these customers good?”
They ask, “How exposed am I?”
Here’s how concentration shows up in buyer diligence:
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What percentage of revenue comes from the top 1, 3, 5, and 10 customers?
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How long have those customers been with the business?
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Who owns the relationship — the company or the owner?
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What happens to EBITDA if one leaves?
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Have any contracts changed hands before?
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How price-sensitive are these customers?
This isn’t abstract.
In many deals, concentration is one of the first reasons a multiple gets reduced — often quietly, without debate.
The Invisible Discount Most Owners Never See
Here’s the frustrating part for owners:
You rarely hear, “We’re reducing the multiple because of concentration.”
Instead, it shows up as:
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“We need to be conservative.”
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“We’re underwriting risk.”
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“We’re adjusting for customer exposure.”
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“We’ll revisit valuation after diligence.”
The discount happens anyway.
Two businesses can have identical revenue and margins.
The one with diversified customers almost always commands a higher multiple.
Not because it performs better — but because it survives more scenarios.
The Real Problem Isn’t Concentration — It’s Dependency
Concentration alone isn’t always fatal.
The real issue is dependency.
Buyers get nervous when:
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A single customer represents more than ~15–20% of revenue
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The top five represent 40–60%+
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Relationships are personal to the owner
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Pricing power lives with the customer
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Expansion depends on continued goodwill, not contracts or switching costs
At that point, revenue starts to look less like an asset and more like a fragile arrangement.
The Owner Bias That Makes This Worse
Owners tend to overestimate customer stability.
You know the people.
You’ve worked together for years.
They say they’re not going anywhere.
Buyers assume none of that survives a transition unless it’s structurally reinforced.
From their perspective:
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Loyalty is personal until proven contractual
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History matters less than incentives
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Relationships can change faster than spreadsheets
They don’t doubt you.
They doubt what happens after you’re gone.
What “Healthy” Concentration Looks Like to Buyers
There’s no single magic number, but buyers generally feel more comfortable when:
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No single customer exceeds ~10–15% of revenue
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Top five customers are under ~30–35%
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Contracts are transferable and enforceable
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Relationships are multi-threaded across the organization
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Customers are expanding based on value, not favors
The further you drift from this, the more risk buyers price in.
How Owners Accidentally Make Concentration Worse
Many owners unintentionally reinforce the problem by:
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Personally managing the largest accounts
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Customizing processes excessively for top customers
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Avoiding price increases out of fear
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Letting one customer dictate product direction
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Delaying diversification because “things are working”
All of this feels rational day-to-day.
At exit, it becomes leverage — just not yours.
The Right Way to De-Risk Concentration (Without Blowing Up the Business)
The goal is not to fire great customers or chase diversification recklessly.
The goal is to reduce downside risk.
That means:
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Gradually building mid-market or secondary customers
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Multi-threading relationships inside key accounts
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Standardizing delivery where possible
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Shifting value from “relationship” to “capability”
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Making revenue survivable, not just strong
This is usually a 12–36 month process, not a quick fix — which is why January matters.
This is the time owners still have room to act deliberately.
Why This Matters More Than You Think
Customer concentration doesn’t just affect valuation.
It affects:
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Deal structure
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Earnouts
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Holdbacks
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Escrows
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Post-sale control
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Stress during diligence
In other words, it affects how clean — or painful — your exit actually is.
The Bigger Picture
Most owners don’t lose value because their business isn’t good.
They lose value because risk shows up where they didn’t expect it.
Customer concentration is one of the most common — and least emotionally acknowledged — examples of that.
From the inside, it feels like strength.
From the outside, it often looks like fragility.
Knowing the difference early is how owners protect their multiple instead of explaining it away.
Ross Armstrong
Co-Founder, Pillar Optimization Partners
We help owner-led businesses identify hidden risks — like customer concentration — and systematically reduce them before they show up in valuation discussions.
If you want to understand how your customer mix looks through a buyer’s lens, an Exit Readiness Audit can help surface where risk is quietly accumulating — and what to do about it while you still control the timeline.
