Short answer
Customer concentration means a large share of your income comes from one customer, or a few. Buyers look at it closely because losing that customer after the sale would cut profit. A concentrated business is often valued lower, or more of the price is paid later and linked to keeping the customer. It rarely stops a sale, but it is worth reducing, or at least explaining, well before you sell.
1. Why buyers care
If one customer provides a large share of your income, the business's future depends heavily on that one relationship. In compliance work this often looks like:
- one facilities management company or main contractor that subcontracts most of your work;
- a single housing association, NHS trust or local authority framework;
- contracts that are re-tendered every few years, so the work is never fully secure.
A large customer may also have short notice periods or a change of control clause, and can use its size to push prices down.
2. How buyers measure it
There is no fixed rule, but the larger the share, the more questions a buyer will ask. Expect to be asked about:
- the share of turnover and gross profit from your largest customer and your top five, over the last three years;
- contract length, notice periods and renewal history;
- who holds the relationship: you, or your team;
- whether the customer is the end client or a contractor in between.
3. How it can affect price and structure
- A lower multiple of profit, to reflect the extra risk.
- More of the price paid after completion, sometimes linked to the customer staying.
- Specific statements about the customer in the sale agreement.
- A request to meet the customer before completion, with your agreement and at a time you choose.
See deferred payments and earn-outs, explained plainly.
4. What you can do before you sell
- Put the big contract in writing, on the longest terms the customer will agree.
- Build relationships at more than one level of the customer, and between the customer and your team.
- Win more customers of a similar type, so the large one becomes a smaller share.
- Where you work through a contractor, look for chances to contract directly with end clients.
- Keep a record of renewals, which shows the relationship has lasted.
5. How Richmonds looks at it
If one customer is a large part of your business, we would still like to talk. We look at the whole picture, including how long the relationship has lasted and the contract terms, and we explain plainly how it affects our offer. See how it works.
Questions owners ask
What counts as customer concentration?
When a large share of your income comes from one customer, or a small number of customers. There is no fixed threshold, but the larger the share, the more closely a buyer will look.
Will customer concentration stop me selling?
Rarely. It is more likely to affect the price, or how much of it is paid after completion.
Does subcontracting for one facilities management company count?
Yes. The facilities management company is your customer, even if the work covers many sites, so a buyer will look closely at that contract and how secure it is.
Sanjeev Desour is the founder of Richmonds, which buys UK water hygiene, water treatment and fire safety businesses from owners who want to retire. He founded IGNITE Academy in 2014 and runs the IGNITE Group of companies. LinkedIn
This guide is general information, not legal, tax or financial advice, and it is not an offer to buy any business. It reflects the rules and announcements known on the "last reviewed" date above. Tax rules and rates change, and announced changes may be altered before they become law, so take advice from your own accountant and solicitor before you act. Richmonds accepts no liability for decisions made on the basis of this guide. See our website terms.