Our largest client represents more than twenty-five percent of our annual revenue, and their contract is up for renewal right in the middle of our target exit window. How do we manage this customer concentration risk so a buyer does not heavily discount our valuation?

Question

Tyler Smith · Accepted Answer

Customer concentration is one of the most common valuation killers. If your largest client represents a significant portion of your revenue, a buyer will view their potential departure as an existential threat to the business post-close.

To mitigate this risk, you must address this renewal early. Do not wait for the contract to expire during the sale process. Approach the client with a proposal to extend their contract early, offering favorable terms or additional value in exchange for a longer-term commitment.

Additionally, use your exit runway to diversify your revenue by focusing your sales team on smaller, high-margin accounts. Show the buyer that your customer concentration is decreasing over time, and that your business model is highly repeatable across a broader client base. Proactive management is key to protecting your valuation.