The 3 Metrics That Matter

(And Why Most Owners Find Out Too Late)

Most business owners think they know their customers.

You’ve got them in your CRM.
You invoice them.
They pay — mostly on time.
Nothing feels wrong.

And then one day, a key account disappears.

No warning.
No big argument.
Just… gone.

When I hear owners say, “It came out of nowhere,” I already know the truth:

It didn’t.
You just weren’t measuring the right things.

Most owners don’t lose customers suddenly.
They lose them quietly — while the numbers still look “fine.”

In a recent video, I explained how buyers spot this long before owners do — and why it quietly destroys leverage in an exit.

This article is different.

This is about how you see it early — while you still have time to act.

The Illusion of “Everything Looks Fine”

We see this constantly in owner-led B2B and industrial businesses.

An owner will confidently tell us the business is strong.

Six months later, they mention their second-largest account moved to a competitor.

Same story every time:

• “We had a great relationship.”

• “They never complained.”

• “We didn’t see it coming.”

The warning signs were there.

They just weren’t visible — because the owner was relying on gut feel instead of data.

And gut feel is a terrible early-warning system.

Why Gut Feel Fails as Businesses Grow

When you’re running a 15–50 person business, it feels like you’re close to everything.

You know the customers.
You know the personalities.
You know the history.

But feelings don’t:

• Scale

• Transfer to your team

• Surface slow erosion

• Show trends early enough to act

They also don’t survive an exit process.

If you’re thinking about selling in the next 3–7 years — or even just trying to build a business that doesn’t rely on you personally holding every relationship together — you need metrics that tell you the truth.

Even when the truth is uncomfortable.

Buyers will look at these metrics whether you do or not.

The 3 Customer Health Metrics That Actually Matter

Forget vanity metrics like:

• Number of customers

• Years in business

• “Strong relationships”

Those feel good.
They don’t predict risk.

These three metrics do.

1. Purchase Frequency Velocity

(The earliest warning sign most owners miss)

This isn’t how often a customer buys.

It’s this question:

How is their buying behavior changing over time?

A customer who ordered monthly for two years but has only ordered once in the last four months hasn’t left yet.

But they’re already halfway out the door.

This is how customers disengage:
Slowly. Quietly. Politely.

By the time orders stop completely, it’s already too late to save the relationship.

How to look at it

• Pull the last 12 months of invoices

• Compare purchase frequency:

  • Months 1–6 vs. months 7–12

• Categorize customers as:

  • Increasing

  • Stable

  • Slowing — and be honest about which category you’ve been avoiding

Anyone slowing down needs attention now, not after they’ve shifted most of their spend elsewhere.

Buyer translation:
When buyers see declining purchase frequency, they assume future churn — even if the customer hasn’t left yet.

2. Customer Concentration Risk

(When “great accounts” become a valuation killer)

Here’s a question most owners avoid:

What percentage of your revenue comes from your top five customers?

If it’s over 40%, you don’t have customer health.

You have customer dependency.

And dependency is the opposite of enterprise value.

We've watched acquisition deals collapse in diligence because buyers discovered that:

• 60–70% of EBITDA came from three customers

• All relationships lived with the owner

• None were contractually protected

To a buyer, that’s not a business.

That’s a house of cards.

How to look at it

• Rank revenue by customer

• Calculate:

  • Top 5 as % of total revenue

  • Top 10 as % of total revenue

If concentration is high, two things must happen at the same time:

• Active diversification

• Multi-threaded relationships inside key accounts

One without the other doesn’t reduce risk.

Buyer translation:
When buyers see concentration, they assume one lost account can rewrite the entire forecast.

3. Customer Margin Trend

(The silent profit killer)

Revenue growth can lie to you.

A customer can buy more every year while quietly negotiating your margins into irrelevance.

It usually happens like this:

• A small concession here

• A “strategic discount” there

• A tough renewal negotiation

Three years later, you’re working harder for less money — and calling it a win.

We've worked with a services company where a marquee client grew to 30% of revenue but generated less than 15% of gross profit.

Month to month, the erosion felt invisible.
In hindsight, it was obvious.

How to look at it

• Track gross margin by customer

• Review quarterly

• Look for trends, not snapshots

A customer with declining margins is becoming a problem — even if revenue is growing.

Healthy customers value your capability.
Unhealthy ones only value your price.

Buyer translation:
When buyers see margin erosion, they assume pricing power is gone — and it rarely comes back.

What “Healthy” Actually Looks Like

A healthy customer base shows:

• Stable or increasing purchase frequency

• No single customer over ~15% of revenue

• Top five under ~40%

• Stable or improving margins

• Multiple relationships per account

• Regular, non-transactional communication

Notice what’s missing?

• How long they’ve been a customer

• How much they like you

• How good the relationship feels

Those matter emotionally.
They don’t protect value.

If one of these indicators feels fragile in your business, buyers will assume the rest are too.

Why Buyers Care So Much About This

When sophisticated buyers evaluate your business, they’re asking one core question:

If the owner steps away, does the revenue survive?

Healthy customer metrics signal:

• Predictability

• Transferability

• Durability

Unhealthy metrics signal:

• Owner dependency

• Concentration risk

• Margin pressure

• Fragile relationships

At that point, buyers assume they’re buying a job — not a system.

And they price it accordingly.

The 30-Day Customer Health Reset

If you want clarity, here’s a simple 30-day plan.

Week 1
Calculate top five and top ten customer concentration.

Week 2
Analyze purchase frequency trends for your top 20 customers.

Week 3
Run gross margin by customer for the last four quarters.

Week 4
Schedule health-check conversations with customers showing yellow or red flags.

Not sales calls.
Real conversations:

• “What’s changing in your business?”

• “Where are we falling short?”

• “What would make us indispensable?”

The Bottom Line

Customer health isn’t about loyalty, history, or warm feelings.

It’s about early visibility.

The best owners don’t wait for customers to leave.
They spot the drift early — and act while they still have leverage.

If customers are your most valuable asset, they deserve better measurement than intuition.

Start measuring.
The numbers will tell you the truth.

Ross Armstrong
Co-Founder, Pillar Optimization Partners

We help owner-operators build enterprise value by turning informal relationships into durable systems long before exit becomes urgent.

If you’ve watched how buyers think — and now you’re looking at your own customer data differently that’s not an accident.

A Customer Health & Exit Readiness Review is about seeing your risk the way buyers already do while you still have time to change it.