What is Customer Concentration Risk?
Customer concentration risk is the level of revenue risk your portfolio holds as a result of relying on a small pool of customers. The bigger the client, the greater the risk your revenue holds. Like the saying goes, don’t put all your eggs in one basket. By diversifying your portfolio, you decrease your revenue risk.
Did you know that:
- Accounts Receivable makes up 40% of your business’ assets – and it’s most likely uninsured.
- About 67% of businesses survive the first two years in business; 50% will survive five years; and only 33% will survive 10 years.
- 82% of businesses that fail do so because of cash flow problems.
You’ve fought hard to get to where you are today. It took guts, sacrifice, time, and boldness. You’ve defended your brand against competitors and complacency, pushing for growth at every milestone. But is there a risk you’re overlooking? Something that’s already within your gates that could potentially disrupt your entire organization? If you’re like any growing business, chances are that there is. And it might be this:
Your largest customer is responsible for 20% or more of your total revenue.
What is Considered High Customer Concentration ?
High customer concentration occurs when any single customer accounts for 20% or more of your revenue. Like anything, there are benefits and risks associated with high customer concentration.