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Customer Concentration Risk Calculator

It is not advised to have a single major source of revenue generation. The level of revenue risk your portfolio has due to depending on a small group of customers is known as customer concentration risk. The risk to your revenue increases with the size of the client.

Customer concentration has an upside, like the opportunity to develop long-term relationships
and improve customer service & customer needs. Keeping a customer concentration risk calculator handy helps in minimizing financial losses.

For instance, you have a high customer concentration if you have one customer who generates 20% or more of your revenue. Like anything else, if there is an advantage, there are also certain disadvantages to having a concentrated consumer base.

Disengagement from the concentrated client base might disastrously affect revenue, earnings, and cash flow. It also has an impact on pricing and negotiating power, both of which ultimately lead to lower revenue. It makes it difficult to diversify over time and unfairly takes resources away from smaller clients. All of this, in turn, may lower your company’s value.

If you’re concerned that a small number of sizable clients account for the majority of your revenue, it’s important to ask yourself the big question: what would happen if you lost your biggest client or if your sector had an economic downturn? A customer concentration risk calculator helps in knowing your existing vulnerabilities and can assist you in managing and reducing any potential future revenue concerns.

Why it is important to calculate customer concentration risk

1. Helps reduce the impact on your business’s creditworthiness

2. Assists in understanding future revenue risks

3. Helps diversify the customer base

4. Gives an insight into the business’s revenue generation areas


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Answers to Frequently Asked Questions

What is customer concentration mean?

The percentage of your total income that is produced by either your highest-paying customer or a group of your top-paying clients is known as customer concentration or customer revenue concentration. The possibility of losing highly profitable consumers raises the risk of this number being too high.

What impact does client concentration have on the company?

A high customer concentration may impact the creditworthiness of your company. You can have a harder time getting loans with low-interest rates if your company depends too much on a small group of clients.

How can you control the risk of client concentration?

Increase sales to new clients or enter new markets to reduce the concentration percentage. Think about an acquisition. Ensure that your company’s client interactions are not dependent on a single individual. Have several contacts who can speak out for you if necessary.

What is the relationship between customer concentration and risk?

The relationship changes dramatically to the downside when customer base concentration exceeds the second threshold, indicating that highly concentrated customer bases encourage providers to exercise greater caution and refrain from taking unwarranted risks.

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