Customer concentration
Customer concentration is the share of revenue that comes from a small number of customers. It matters because losing one account can erase a disproportionate share of earnings, so buyers and lenders discount concentrated revenue even when the business is profitable and growing.
There is no single legal threshold, but Canadian buyers commonly start asking harder questions once any one customer passes roughly ten to fifteen percent of revenue, and treat anything above a quarter as a structural risk rather than a detail. Lenders often apply their own limits, which can constrain how much of a purchase price is financeable.
What buyers actually check
- Revenue by customer for the last three years, not just the current one
- Whether the relationship is contracted or simply habitual
- Whether the contract survives a change of ownership, or lets the customer walk
- How long the customer has been buying, and whether volumes are trending down
- Whether the relationship belongs to the business or to the departing owner
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentSelling a business
- 02Treadstone LawLegal commentaryCustomer Concentration Risk: Why It Can Sink an Ontario Business Sale
- 03Treadstone LawLegal commentaryAre Your Contracts Assignable?
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