Customer concentration is the risk that arises when a significant portion of revenue depends on a small number of customers. It is measured by the revenue share of the top 1, 5, or 10 customers. High concentration means losing one or two customers could materially impact the business, making revenue less predictable and the company more fragile. Investors view concentration as a risk factor during due diligence.
If losing one or two customers would materially hurt your revenue, that is a concentration risk. Investors see this as fragility: the business depends on relationships, not product-market fit.
High concentration is common early on and not necessarily a deal-breaker, but investors need to see a plan to diversify.
Top customer < 20% of revenue is generally acceptable. Top 5 customers < 50%. Enterprise-heavy businesses may have higher concentration early.
If any single customer is > 30% of revenue, expect investors to probe the relationship, contract terms, and diversification plan.
ARR $1.2M across 40 customers. Top customer: $300k (25%). Top 5: $750k (63%). This is concentrated. Losing the top customer would cut ARR by 25%.
Hiding concentration by showing averages. Investors will look at the distribution.
Having top customers on month-to-month contracts. If concentrated, at least lock in annual agreements.
Not planning for churn of large accounts. Model the downside scenario.
Do not highlight concentration unless asked. If it comes up in due diligence, have a clear answer: long-term contracts, expanding customer base, and pipeline of new logos.
Looking for investors?
Browse 950+ European investors filtered by stage, sector, country, and check size.
Explore the investor directory