When Your Best Customers Become a Liability

Good news. Your biggest customer just gave you more business and your revenue will increase dramatically. You’ll be hiring more staff. But hold on, here’s why it pays to be cautious about letting your best clientele become your primary income driver.

Too much customer concentration is actually a red flag for buyers, and it should be for owners as well. When just a couple of customers make up the bulk of your monthly income, you’re putting your company at significant risk.

First and foremost, my rule of thumb is that company owners should never have more than about 15% of their monthly revenue dependent on one or two big customers. No matter how solid your performance or how longstanding the relationship, the loss of a big account could put your company in financial jeopardy.

This is a good time to evaluate your mix of customers. I’m not suggesting that you turn down work or fire your best customer. What I am suggesting, however, is that you continue to grow your business. Pursue valuable new customers to expand with. Get your proposal template updated, knock on some doors, and start building new relationships.

Diversifying your customer base is beneficial for your business. It will reduce risk and help you weather the storm of economic downturns or changes such as mergers and sales. Additionally, it will make your business more attractive to a buyer.

Customer concentration is one of the most important factors a buyer considers when they’re looking to acquire a company. They know there’s no guarantee that a customer will stay with a new owner. The new owner may be forced to continue an agreement that is not profitable or a fit for their growth strategy. Some agreements may not have assignability clauses, which means that the contract ends when the company is sold. (You should definitely have your attorney check your written agreements and contracts for this issue.) 

Buyers who see a company with too much customer concentration will likely want to buy at a deep discount. They often require sellers to hold a forgivable note, take structured payouts over time, or agree to other terms that mitigate the risk for the new owner. In either case, it is likely you won’t get full value for the company you’ve worked so hard to build.

Some companies with just a few prime customers, no matter how much revenue they’re generating, might even be unsellable.

This is why leaning on your primary client can make or break your future success. It is imperative to build a larger customer base. Even if you are not planning to sell your company any time soon, expanding to a more vast clientele is a beneficial business decision. You’ll be thanking future you.


If I can help you evaluate your company’s worth and marketability, the first step is to schedule a call with me. 

About the author: Jim Parker


Jim Parker is an experienced business broker specializing in small businesses. His company is based in Clermont, Florida. As an industry leader, he has served as the past president of the Business Brokers of Florida and currently sits on the International Business Brokers Association’s Board of Governors. Jim is a sought-after speaker who teaches others in his industry best practices in ethics, closing transactions, and finding qualified buyers. He has earned over 50 awards and recognitions in his career.

Jim is a Certified Business Intermediary (CBI), Certified Mergers and Acquisition Professional (CMAP), Masters Certified Business Intermediary (MCBI), and is a Mergers & Acquisitions Master Intermediary (M&AMI. He is one of less than 20 business intermediaries in the world that have all four of these designations. To contact Jim, give him a call at (407) 927-8999.