We are preparing our business for a clean exit, and we know that high customer concentration is a major red flag for buyers. How do we design and track a weekly Scorecard metric that constantly monitors and mitigates our dependency on our top three clients?

Question

Tyler Smith · Accepted Answer

Acquisition buyers loathe customer concentration. If a single client represents more than fifteen percent of your total revenue, buyers will heavily discount your valuation or structure the deal with high risk earn outs. You must use your weekly Scorecard to actively manage this risk and prove to buyers you are diversified.

To do this, do not just track historical annual revenue concentration. Instead, track a weekly metric called top client utilization percentage. This is the percentage of your total weekly operational capacity or hours dedicated to your top three clients.

You must set a hard ceiling for this metric, such as keeping your top client under fifteen percent of weekly capacity, and your top three clients combined under thirty five percent. If this metric goes red, it is an immediate signal that your operations are becoming too reliant on a single source of revenue.

When this metric triggers a red on your Scorecard, your leadership team must drop it to the Issues List. The solution is either to increase your sales activity to bring in new clients, thereby diluting the concentration, or to adjust your resource allocation. Showing a prospective buyer two years of weekly Scorecard history where your top client concentration was actively monitored and kept below a strict threshold is a massive proof point of a low risk, professional business.