How Customer Concentration Impacts Your Valuation

Even if you’re not thinking about selling today, it’s worth considering how your business looks through the eyes of a potential buyer or investor. Because when customer concentration is high, most serious buyers will flag it as a risk—and discount accordingly.

Why?
Buyers aren’t just investing in what the business is today. They’re betting on future earnings. And if too much of your future relies on one or two customer relationships, the whole thing starts to look fragile.

Here’s what experienced buyers want to know:

• Are those customers locked into long-term contracts—or could they walk at any time?
• How loyal are they to the company versus the owner or a specific team member?
• What’s the contingency plan if a key client leaves?

Even if your margins are great and your revenue is strong, concentration like this triggers a valuation discount. It raises questions about the stability of your cash flow and how easily your success can be replicated post-sale.

And in some cases? It limits the pool of potential buyers altogether.

If an exit is part of your long-term plan, now’s the time to address this. The earlier you begin diversifying your customer base, the more attractive (and valuable) your company will look when the time comes.

Next week, I’ll walk you through practical strategies to reduce customer concentration risk—without losing what’s working.

Until then—build smart.