Customer concentration
Definition
Customer concentration is the share of revenue coming from one customer or a small group of them. Above roughly 20% from a single account, buyers start discounting; above 40%, many walk. It is one of the few things that cuts a price with nothing else wrong with the business.
Customer concentration is the proportion of a business's revenue that depends on one customer, or on a small group of them, usually quoted as the largest account's share and the top five combined.
What it means at this size
A business with $3,000 to $5,000 of MRR does not have many customers to spread risk across, so some concentration is normal and buyers expect it. What they are testing is whether losing the top account turns a working business into a loss-making one. At a $50,000–$150,000 close the buyer is often paying with their own capital, and a single cancellation that removes a third of the income is a risk they feel personally.
The relationship matters as much as the number. An account that came through the founder, renews on a handshake, or belongs to a former colleague does not transfer with the ownership of the product.
Where it bites
Concentration compounds every other weakness. A high-churn business with one dominant customer is priced on the assumption that customer leaves. Agencies reselling under their own brand are the common version at this size: the revenue looks like ten customers and behaves like one.
Worked example
A micro-SaaS bills $4,000 of MRR, or $48,000 across the trailing twelve months, and produces $40,000 of SDE. One account pays $1,200 a month, 30% of revenue, and has been in place for two years on a rolling monthly agreement.
At 3× trailing annual profit the ask would be $120,000. Most buyers will price the exposure in and come back at 2.4×, or $96,000. Some will decline. A $24,000 difference, on a business whose product, costs and profit are otherwise strong.
Why it matters when you exit
If one account is above a fifth of revenue, the twelve months before listing are better spent broadening the base than polishing the listing. Where that is not possible, disclose the figure upfront, show the contract term and the payment history, and price accordingly. Buyers forgive concentration they were told about. They do not forgive finding it themselves.
Related: churn, net-revenue-retention, single-channel-dependency, how-buyers-value-customer-concentration
See what a business at this level is listed at.
Everything on sale between $50,000 and $150,000, on the same fields.