What is customer concentration?

It is how much of your sales come from your biggest customers. Divide what your biggest customer bought over the last 12 months by your total sales for the same 12 months. A cleaning company with $600,000 of sales and one $210,000 contract has 35% of its sales with one customer.

How much revenue from one customer is too much?

There is no official line, but guides commonly start to worry somewhere between 10% and 20% from a single customer, and treat 25% or more as heavy reliance. This calculator calls under 10% well spread, 10% to under 25% worth watching, and 25% or more heavily reliant. The real test is the next question: what would losing them do to your profit?

How do I work out what losing my biggest customer would cost?

Multiply their sales by your gross margin. That is the gross profit that leaves with them, because the cost of the goods, materials or direct labour you would no longer spend on them goes too. Take it off your net profit. At a 45% margin, a $210,000 customer takes $94,500 of gross profit with them, which turns $72,000 of net profit into a $22,500 loss unless overheads come down.

Why does customer concentration matter when selling a business or borrowing?

A buyer or lender is buying future profit. If a large share of it depends on one customer who could leave, that profit is less certain, so it is common for buyers to pay less or ask for an earn-out, and for lenders to ask more questions. Spreading sales before you sell or borrow usually helps more than anything you say about the relationship.

How do I reduce my reliance on one customer?

Win more work from other customers rather than less from the big one. The calculator shows the extra sales from others that would bring your biggest customer under 25%. Meanwhile, keep their invoices paid on time, get a written contract with a notice period, and keep enough cash to cover the months it would take to replace them.

Where do I find sales by customer in Xero?

In Xero, the Income by Contact report (called Income and Expenses by Contact in newer versions of Reports) lists money received by contact, but it can include receipts that are not sales, such as a loan. The Receivable Invoice Summary, summarised by contact, shows what you invoiced each customer. Use invoiced figures without GST or VAT, the same as your total sales on the Profit and Loss.

Are my figures stored or sent anywhere?

No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.

Customer concentration calculator: reliant on one customer?

How the calculator works

Biggest customer's share = their sales ÷ your total sales, over the same period. Under 10% is well spread, 10% to under 25% is worth watching, and 25% or more is heavy reliance.
Biggest 3 and 5 = the same for the customers you enter. A business can have no single customer over 25% and still depend on three.
Sales a month to replace = the biggest customer's sales ÷ the months in the period.
If they left = their sales × your gross margin, the gross profit that goes with them, taken off your net profit. Overheads such as rent and your own wage do not go with them, which is why one lost customer can turn a profit into a loss.
To get under 25% = their sales ÷ 0.25, less your total sales: the extra sales from other customers that would make the biggest a quarter of the total.

A worked example

A commercial cleaning company in New Zealand looks at its last 12 months. Made-up figures to show the arithmetic.

Last 12 months	$	Share of sales
Office park contract	210,000	35%
Medical centre	66,000	11%
School	48,000	8%
Retail chain	30,000	5%
Gym	24,000	4%
Everyone else	222,000	37%
Total sales	600,000	100%

Biggest customer: $210,000 ÷ $600,000 = 35%. The biggest 3 are $324,000, or 54%; the biggest 5 are $378,000, or 63%.
To replace them: $210,000 ÷ 12 = $17,500 of new sales a month.
If they left: the gross margin is 45% (cleaners' wages and supplies are in cost of sales), so the contract brings in $210,000 × 0.45 = $94,500 of gross profit. Net profit for the year was $72,000. Without the contract it would be $72,000 − $94,500 = a $22,500 loss, unless the office, vans and managers' wages came down too.
To spread the risk: $210,000 ÷ 0.25 = $840,000 of total sales would make the contract a quarter of the business, so $240,000 more sales a year from other customers, about $20,000 a month.

The headline 35% sounds manageable; the loss is what makes the case for a notice period in the contract, a cash buffer, and a sales push elsewhere. Press "Load the worked example" above to see it in the calculator.

Getting the figures from Xero

Total sales: run the Profit and Loss for the last 12 months and take Total Trading Income (Xero shows it without GST or VAT). How to read a Profit and Loss in Xero explains each line.
Sales by customer: the Receivable Invoice Summary, summarised by contact, shows what you invoiced each customer; sort it by amount. The Income by Contact report shows money received by contact, but can include receipts that are not sales, such as a loan or a refund. Check the invoice report against the Profit and Loss before you work out shares: sales entered as Receive Money (card or online shop payouts) are missing from it. In the Xero sales report guide, a coffee roaster's invoice report showed $67,000 of its $84,000 sales, so every customer's share looked bigger than it was.
Use the same basis for both. If your customer figures include GST or VAT and your total sales do not, every share comes out too high. Credit notes should come off the customer they belong to.
Gross margin: Gross Profit ÷ Total Trading Income × 100 on the same report. Gross profit margin in Xero covers what moves it.

If one customer is too big a share

Keep them paying on time. A big customer who pays late is a cash flow problem as well as a risk; the debtor days calculator shows how long they keep your cash, and who owes me money in Xero shows where to look.
Know how long you could last without them. The cash runway calculator shows how many months the bank balance lasts if you take their sales out of your monthly income. How many months of cash should a business have suggests a floor.
Check your new break-even. The break-even calculator shows the sales a month you need with them gone.
Spread it before you sell. A buyer who worries one customer could leave treats your future profit as riskier and discounts it harder; in discounted cash flow for a small business, moving the rate from 25% to 30% takes a cleaning company's value from $473,072 to $387,154.
Watch it every month, not once a year. A customer can grow from 15% to 40% of sales in a few months without anyone noticing; how to know if your business is doing well lists the other numbers worth a monthly look.

Questions

What is customer concentration?: It is how much of your sales come from your biggest customers. Divide what your biggest customer bought over the last 12 months by your total sales for the same 12 months. A cleaning company with $600,000 of sales and one $210,000 contract has 35% of its sales with one customer.
How much revenue from one customer is too much?: There is no official line, but guides commonly start to worry somewhere between 10% and 20% from a single customer, and treat 25% or more as heavy reliance. This calculator calls under 10% well spread, 10% to under 25% worth watching, and 25% or more heavily reliant. The real test is the next question: what would losing them do to your profit?
How do I work out what losing my biggest customer would cost?: Multiply their sales by your gross margin. That is the gross profit that leaves with them, because the cost of the goods, materials or direct labour you would no longer spend on them goes too. Take it off your net profit. At a 45% margin, a $210,000 customer takes $94,500 of gross profit with them, which turns $72,000 of net profit into a $22,500 loss unless overheads come down.
Why does customer concentration matter when selling a business or borrowing?: A buyer or lender is buying future profit. If a large share of it depends on one customer who could leave, that profit is less certain, so it is common for buyers to pay less or ask for an earn-out, and for lenders to ask more questions. Spreading sales before you sell or borrow usually helps more than anything you say about the relationship.
How do I reduce my reliance on one customer?: Win more work from other customers rather than less from the big one. The calculator shows the extra sales from others that would bring your biggest customer under 25%. Meanwhile, keep their invoices paid on time, get a written contract with a notice period, and keep enough cash to cover the months it would take to replace them.
Where do I find sales by customer in Xero?: In Xero, the Income by Contact report (called Income and Expenses by Contact in newer versions of Reports) lists money received by contact, but it can include receipts that are not sales, such as a loan. The Receivable Invoice Summary, summarised by contact, shows what you invoiced each customer. Use invoiced figures without GST or VAT, the same as your total sales on the Profit and Loss.
Are my figures stored or sent anywhere?: No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.

This calculator gives an estimate from the figures you enter. It is not financial advice. Xero is a trademark of Xero Limited. This tool and ReportPilot are independent and are not made or endorsed by Xero.

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