Glossary
Client concentration
The degree to which a business's revenue depends on a small number of clients, usually expressed as the share of revenue from the largest client and from the top five or ten.
In plain English
If one client accounts for a large share of revenue, the business is exposed to that client's decisions: a change of marketing director, a review, a budget cut or an acquisition of the client itself. Buyers look at concentration because it tells them how much of the earnings they are paying for could disappear with a single decision outside their control.
Why it matters
Concentration affects both value and structure. Buyers may apply a lower multiple, seek a larger earnout or deferred element, ask for specific protections relating to the key client, or want to speak to the client before completion. It is rarely a reason not to do a deal on its own, but it is almost always discussed.
Concentration also has a people dimension: a large client whose relationship sits entirely with the founder combines two of the most common buyer concerns in one.
What to watch for
- Understand the relationship properly: contract terms, notice periods, history, the breadth of contacts inside the client and how the account has grown.
- Reducing concentration is best done by winning comparable clients, not by shrinking the largest one.
- Spread the relationship across the team so that it does not depend on one person.
- Be ready to discuss what the business would look like without the client, and why that is unlikely to happen.
Written by Motion Advisory Partners as general guidance.