**Episode 14 of the Business Growth and Exit Strategies Podcast**
If it is true that one customer can make you rich, it is also true that one customer can make your company virtually unsellable.
Concentration is not a sales problem. It is a valuation problem.
Investors look at your client list and ask: what happens if this person, this company, this organization leaves you? What are you going to do?
Maybe you could last 30 days, 60 days, maybe 90. But then you are in real trouble. You have to find somebody—or several somebodies—to take their place.
## It Is Not Just Clients—It Is Marketing Too
The flip side of this conversation is marketing concentration.
Every other month, Facebook, Google, or whatever platform you sell on changes the rules. When they change, you scramble to figure out the new game.
I have seen companies that were top-valued lose their valuation in the space of two quarters because they lost their main revenue strategy through a social media platform.
## How Concentration Affects Your Deal
Concentration signals dependency risk and revenue fragility.
Investors say: time out, we have some concerns. That is a ding. That is a dent. We are going to take some of your multiple away.
It could be tougher deal terms, earn-outs, holdbacks, or longer transition requirements.
To get the maximum multiple, you want to hand over the keys and say: thank you, thanks for the wire, I am moving on with my life.
## The Pricing Problem
With minimal clients, you have pricing issues.
If you need to increase prices—which should happen every year—the fear becomes: if I go to this client and increase the price, they are going to leave.
Now you have lost optionality. You have lost the ability to predict whether your client base will stick around.
I had a professional service provider apologize to me for raising prices. Instead of saying “the cost of service has gone up, here is what it will be,” it felt like an apology.
Where possible, have automatic price increases tied to cost of living index or inflation. Build it into the contract so it is not a conversation.
## The Eight-Year Pricing Gap
I looked at a company to purchase about two years ago. They had not raised their prices in eight years. Eight years behind the market.
When you go in to raise prices on those clients, you are going to have churn. You are going to lose people.
They were shooting for maximum multiple. I had to tell them: you are looking at about a quarter of the value you think. Not to be mean—because of the amount of risk.
## Contract Structure Matters
Having long-term contracts, termination clauses, and renewal patterns reduces risk.
Something based on a handshake—1950s style—increases risk.
With a predictable billing cycle and two years on the terms, a buyer knows: roughly two years left in this revenue. We can take a look at it.
If everything is month-to-month, you will absolutely have churn. People will leave to find a new vendor.
## When Companies Get Sold, Competitors Attack
In certain industries, when word gets out that a company sold, sales teams from competitors go after those clients: “That company sold. You should switch. They are no longer the owners.”
If you have a holdback, that counts against it.
Easy numbers: you sold your company for $1 million with $100,000 in holdbacks. You lose $50,000 in contracts. Your holdback is now $50,000.
Having contracts in place gives you the ability to say: you are not leaving just yet.
## Buyers Worry About Change
Buyers fear: what is going to change with new ownership? Same service? Same processes? Same delivery? Same people? Same consistency?
The fear is things will change, and it will not have the same touch it used to have.
The more controls you put in place—systems and procedures—the more seamless the transition. New ownership, new person, let us get this taken care of.
## Examples of Dangerous Concentration
Watch for these patterns:
– Fast growth from one or two accounts
– Custom work creep—doing things outside the norm because they have been a client
– Special rules for certain customers
– Special builds for certain people
– One team member assigned when everyone else has floating team members
These patterns slowly increase dependency and make revenue look strong while creating fragility.
The only reason some clients stick around is they are getting a deal on custom work. Examine that in your contracts and pricing.
## One-Rep Dependency
If there is only one rep who can handle a certain client, you are in trouble if that rep leaves.
If there is only one salesperson who can deal with a certain type of contract, back that up. Have two people who can handle it.
## How Concentration Shows Up in Deal Structure
Without diversification, concentration shows up in reps and warranties. Money comes off if you cannot fulfill promises.
When private equity comes in, they say: we have proven history, and based on this history, here is what the expectation should be.
Every time there is risk, it is a ding or a dent. They take money from you.
## How to Reduce Concentration
Find clients you can add that are adjacent in properties or services. Broaden channels. Package repeatable offers.
The goal: make growth come from systems, not a single relationship, not custom work.
Take a 90-day look: what could we do to add another channel? What could we do to add more clients so we are not risking everything on one, two, three, or four accounts?
Concentration reduction is not just dropping the big client or growing everything faster. It is strategic. How do we make moves behind the scenes to ensure that if the big client leaves, we are not scrambling?
## The 90s Vendor Trap
In the 90s, there was a company that would tell businesses: we are going to help you figure out your pricing. They became the vendor of choice.
After they got to know the books and the company, they would renegotiate the deal—because they were 90% of the workflow.
Companies had to go with it because they had gotten rid of all their other clients and single-sourced 90% of work to this vendor. It created massive problems.
## Questions to Ask Your Pipeline
– Who is most susceptible to revenue loss?
– Who is most susceptible if you take away custom work?
– If this client left, how long would it take to replace them?
If you are doing $1 million in revenue and one client represents $250,000, and they left—how long to replace them?
That is a sales team conversation: we need to find another client at $250K, or three or four new clients to make up for it.
## Product and Service Concentration
Sometimes the client list looks diverse, but all the revenue comes from one product or service.
It is not just the clients you have. How much revenue is tied to one service you provide? What happens if that service gets changed?
In some industries, laws change. Be aware of how much a law change affects your business.
## The Mitigation Story
If you have concentration risk, you need a credible mitigation story and contract protection.
Buyers want to know you have thought about this and have a plan.
—
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**Podcast Trascript:**
Here we go—episode number 14: The Valuation Impact of Customer Concentration.
If it’s true that one customer can make you rich, it’s also true that one customer can make your company virtually unsellable.
Customer concentration isn’t just a sales problem. It’s a valuation problem. Investors immediately ask: What happens if this client leaves? What happens if this company goes out of business, gets acquired, or switches vendors? Could you survive 30, 60, or 90 days? And then what?
Concentration signals dependency. Dependency signals risk. Risk creates revenue fragility. And every time buyers see fragility, they apply a discount. That might show up as a lower multiple, tougher deal terms, earn-outs, holdbacks, or longer transition periods. All of that reduces your optionality—and your payout.
This applies not only to clients but also to marketing channels. If most of your revenue comes from one platform—Facebook, Google, direct mail, a single referral source—you’re exposed. When algorithms change or policies shift, valuations can collapse in two quarters.
Pricing power is another issue. If one client represents a significant percentage of revenue, raising prices becomes risky. You hesitate. You apologize. You underprice. Over time, you fall behind the market. I reviewed a company that hadn’t raised prices in eight years. To bring pricing back to market would have triggered massive churn. The valuation had to be adjusted downward because the risk was too high.
Contract structure matters. Long-term contracts with termination clauses and renewal patterns reduce risk. Month-to-month relationships increase it. Predictable billing cycles give buyers visibility. Handshake agreements create uncertainty.
When a company is sold, competitors often target its clients. If those clients aren’t contractually secured, churn can immediately impact holdbacks. For example, if $100,000 is held back and you lose $50,000 in contracts post-sale, that holdback shrinks. Strong contracts protect value.
There are other dangerous concentration patterns. Fast growth driven by one or two major accounts. Custom work creep where one client gets special treatment. Dedicated teams assigned to a single customer while others share resources. All of this creates fragile relationships.
Special rules and special pricing for one customer distort your model. They make revenue look strong but hide dependency. If that client leaves, the impact is magnified.
Diversification doesn’t mean dropping a large client. It means strategically growing everything else. Broaden channels. Package repeatable offers. Expand adjacent services. Reduce reliance on single relationships. The goal is growth from systems—not from one key account.
You should be reviewing concentration monthly. Set a threshold—ideally no single client over 20% of revenue. If someone crosses that threshold, ask why. What happens if they leave? How long would it take to replace them? If a $250,000 client exits from a $1 million business, what is your realistic replacement timeline?
Also examine product concentration. Sometimes the client list looks diverse, but revenue depends heavily on one service line. If regulations change or market demand shifts, how exposed are you?
If you do have concentration risk, you need a credible mitigation story. That includes contract protections, pipeline development, diversification plans, and documented replacement strategies. Buyers want to know you’ve thought through the downside.
Ask yourself: If a competitor undercuts our largest client during a sale process, what is our plan? If a buyer spots this concentration, what concessions will they demand?
Concentration is a leverage point in valuation. It either strengthens certainty or weakens it. The stronger your diversification, the stronger your negotiating position.
This month, identify your largest client and calculate their percentage of total revenue. If they exceed 20%, build a replacement plan. How many new clients would you need? How long would it take your sales team to secure them? What marketing adjustments are required?
The more prepared you are for client loss, the more confident buyers will be. And confidence supports the maximum multiple.