The Highlights
Over-reliance on a customer or supplier is a top deal-killer in M&A.
25% or more from one customer can be a red flag.
Buyers see risk, not revenue.
Even great businesses with lopsided income streams get heavy discounts.
Plan to reduce dependence before you go to market.
The Risk You Don’t See Until It’s Too Late
Picture This…
You land a dream client. Big volume. Great margins. Steady flow of business. They’ll be a lion’s share of your top-line. You plan to build around them.
More staff, more space, more time and resources to service their account. It feels like you just hooked a giant fish that’ll feed you for a long time. But to a buyer, it could look like a catch that’s too big for the boat.
Why?
Because when 30%, 40%, 60% of your revenue walks out the door if that single “big-fish” leaves, that translates to dangerous exposure. Concentration doesn’t just kill deals. It nukes your leverage and puts your operational security at risk.
Unless you have ironclad contracts with that customer laying out minimum purchases, clear payment/credit terms, exit or cancellation penalties, and any other mitigating factor that all but guarantees and protects your future revenue, buyers will typically see this as a precarious source of business.
And you can bet that they’ll tear through any contracts you have with this customer to identify potential eventualities that will lead to lost revenue.
But you say: ‘We have an amazing working relationship with them, they’re booming and pumping orders to us, they’ll never get better service or pricing’. This still won’t sway the risk-averse buyer crowd.
In this case RISK =
Reassurance
Isn’t
Sufficiently
Known
As we’ve said before in just about any other newsletter or post I’ve written. The prospect of significant uncertainty will put downward pressure on multiples or kill deals entirely.
Concentration exposure applies with suppliers too, but not as severely in most cases. As long as there are alternatives for your source of inventory - this is less of an issue. But, if you’re buying from a supplier with a 1 of 1 product or a significant hold on the supply chain, with little-to-no alternatives should that source disappear.. the above stands as true.
What Buyers Really See
When they analyze your customer (and supplier) base, they ask:
How diversified is the revenue? (customer)
What happens if the top 1 or 2 customers leave?
Are there alternatives to source products? (supplier)
Is the relationship with the company, or with you? (both)
What happens if they close their doors or get sold? (both)
Are contracts long-term and sticky, open ended month-to-month, or even worse.. just based on a handshake?
Because you’re not just selling what you built. You’re selling its ability to survive without you. And if one phone call can crater your business, buyers will either walk away or price in the risk.
What You Can Do
Concentration isn’t always avoidable, but it is addressable. If you’ve got a dominant source of business:
Build around them carefully.
Push your ops team to own the relationship, not just you.
Bring in smaller accounts, diversify profit centres, delivery channels & offerings.
Structure stronger contracts (Purchase terms, pricing, cancellation contingencies, where possible)
Be transparent with buyers. Show your forward-looking plans to mitigate and build in alternatives.
Deals can still get done with concentration. But you’ll need to install buffers to soften the blow of a potential loss of income.
Tangible Takeaways
You’re not wrong for chasing big accounts. But relying on them too heavily can quietly trap you. Here’s how to de-risk without blowing things up:
Get honest about your exposure.
Run the numbers. What % of your revenue is tied to the top 1 - 3 clients? You can’t fix what you don’t know.Start one new customer conversation a week.
Even small accounts add stability. One email, one intro, momentum compounds.Strengthen existing contracts.
If you’ve got key accounts, try to lock them down. Multi-year terms, auto-renewals, exit clauses that protect you.Make someone else the relationship.
If you’re the glue, you're also the risk. Start handing off key decisions to trusted team members.Track customer dependency, not just revenue growth.
Every month, ask:
- Are we more or less concentrated?
- What % is secured via contract?
- Who owns the relationship (me, or the company)?
You don’t need a hundred solutions. Knowledge and future-proofing go a long way.
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