We have a highly concentrated customer base where our top three accounts represent over sixty percent of our revenue. How do we systematically de-risk this customer concentration on our exit runway so buyers do not hit us with a massive valuation discount or demand a punitive earn-out?

Question

Tyler Smith · Accepted Answer

Customer concentration is one of the most common reasons deals fall apart or get hammered with a low valuation multiple. If a single customer accounts for more than fifteen percent of your revenue, or if your top three clients represent over forty percent, buyers will see your business as a high-risk gamble.

To de-risk this concentration on your exit runway, you must take immediate, systematic action over a twenty-four to thirty-six month period.

First, use your quarterly planning sessions to focus your sales Rocks specifically on diversifying your customer base. You must intentionally direct your marketing budget and outbound sales efforts toward new accounts, even if it means slowing down growth within your largest accounts.

Second, transition your largest clients to long-term contracts with robust assignability clauses. If your top clients are locked into multi-year agreements that survive a change of control, the buyer will feel much more secure about the stability of the revenue stream.

Third, completely remove yourself from managing these key accounts. Transfer the daily communication, relationship management, and contract negotiations to other members of your leadership team. If the key client relationships are owned by your account managers rather than you, the buyer will not fear a mass exodus of clients once you leave.