Customer concentration data for small businesses

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January 04, 2024

by a searcher from Harvard University in Greenwich, CT, USA

I've encountered many businesses with significant customer concentration lately. Does anyone have research on customer concentration across all small businesses in the US? Across the population of retirement-aged-founder-owned businesses we're all looking at, what percent are unbankable / unsellable? (and are there trends in certain industries, etc...)

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Reply by a searcher
from Rice University in Houston, TX, USA
I'm not aware of any data on customer concentration across the US.

For bankable, thresholds I've heard from lenders is less than 25 or 30% is ideal. That said, I've seen up to 45% be bankable.

With higher concentration, the key considerations I've seen in lending discussions are:
(1) what contracts, tenure supporting the customer, interconnectedness, or other factors reduce the chance the customer will reduce or cancel work?
(2) what is the mitigation plan if they do?
(3) what is the risk-adjusted revenue if the customer with concentration decreases or goes away?
(4) given risk adjust revenue, what is the "healthy" amount of debt from the lender?
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Reply by a searcher
from Temple University
It really depends on the business model and industry. I've seen manufacturers that built an entire business around providing three parts to Apple. Then a B2C business is going to have a very different customer profile. Ask yourself what the customer profile looks like relative to the industry they serve. For example, government contractors, aviation, B2B automotive, large pharma manufacturers, etc, all probably have higher customer concentration because the number of potential buyers are large in size but small in number. Manufacturers selling to wholesalers or distributors probably have high concentration.
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