In The Trenches How to Price, Structure, and Diligence Around Customer Concentration
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Jun 5, 2025 Discover the critical role of customer concentration in business acquisitions and how it shapes pricing strategies. The discussion emphasizes the need for diligent risk assessment when dealing with major clients. Learn about real-life case studies that reveal the complexities of valuation in companies with similar concentration levels. Explore strategies to mitigate risks associated with customer dependence and the importance of thorough due diligence. The insights shared highlight the necessity of robust planning as businesses grow and refine their outsourcing tactics.
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Customer Concentration: Common Reality
- Customer concentration is nearly inevitable in small businesses, often ranging from 10% to 30% of revenue.
- Concentration above 30% could indicate a business highly vulnerable to losing large customers.
Evaluate Profitability and Risk
- Assess the profitability of large customers relative to others to understand risk.
- Calculate the business EBITDA remaining if the large customer defects to gauge resilience.
Structure Deals with Contingent Payments
- Use deal structure to mitigate customer concentration risk by deferring payment contingent on customer retention.
- This reduces entry price and aligns payment with business stability post-closing.