Customer Concentration: The Risk Many Owners Don’t Want to Acknowledge

Welcome back to the Mid Market Insider!

Today, we’re discussing customer concentration and how it’s a risk many owners don’t want to acknowledge in their business.

Before we dive in…

Customer concentration quietly becomes a problem long before anyone admits it.

Most business owners don’t see the risk because the relationship feels stable.

They trust the customer.

The work feels consistent.

And it’s been that way for years.

But buyers see something very different.

When one customer represents too much revenue, or when revenue depends heavily on sporadic, project-based work, it’s not viewed as “normal.” It’s viewed as fragile.

And fragile businesses don’t command strong valuations.

Why Buyers Care So Much About Concentration

Buyers want stability and predictability.

They want to know what the next 12–24 months will look like, not just the last.

So when they see:

• One client making up 30–40% (or more) of revenue

• Revenue tied to one-off projects with no long-term visibility

• A key relationship managed solely by the owner

It’s a red flag to them.

Not because they don’t like the business, but because they can’t confidently forecast the future.

The Solution Is Simple. The Work Is Not.

I’m often asked: “How do I fix customer concentration without losing what I already have?”

There’s no magic lever, but there is a path:

1. Bring in new customers

Even a few smaller accounts can rebalance risk.

2. Build recurring or contract-based revenue where possible

Predictability is worth more than people realize.

3. Reduce dependency on any one relationship

More people inside the business should know the customer, not just you.

4. Create systems that support diversification

A repeatable sales process goes a long way toward reducing reliance on one major client.

Diversifying Isn’t Easy, But It’s Necessary

I won’t sugarcoat it.

Diversifying takes work.

It takes time.

And it often forces the business to move beyond what feels comfortable.

But the alternative is far harder:

A buyer pointing out the issue after it’s already baked into your valuation.

And at that point, there’s no quick fix.

If you’re thinking about selling in the next 1–5 years, now is the time to start reducing dependency.

What feels like a “manageable risk” today can cost you millions at exit.

Address it long before someone else forces you to.

“So you want me to turn down work from my biggest customer?”

No, but you do need to recognize the risk.

Adding capacity or finding new customers feels hard.

But relying on one customer is far riskier.

You don’t fix concentration by rejecting revenue. You fix it by slowly creating room for diversification.

It’s not easy, but it’s essential.

That’s all for today’s newsletter! Thanks for reading!

📅 Next Week:

Next week, I’ll be sharing a deal I was recently a part of where “bad advice” played a huge role, and how to discern between good and bad advice for your business.

Keep building,
Nick