What is customer concentration analysis?

Customer concentration analysis examines the distribution of revenue across the client base to identify dependence on a small number of clients. For professional service firms, a high concentration (where a few clients account for a significant share of revenue) creates business risk: the loss of a major client can devastate the firm. Regular concentration analysis informs client development strategy and risk management.

Key characteristics

• Examines revenue distribution across clients

• Identifies dependence on top clients

• Common metric: percentage from top 5 or 10 clients

• High concentration indicates elevated risk

• Should be tracked and trended over time

• Informs client development and risk strategy

Why it matters for professional service firms

Client concentration often goes unnoticed until a major client departs. A firm that derives 40% of its revenue from one client faces existential risk if that relationship ends. Regular concentration analysis keeps this risk visible, informing decisions about client development (growing smaller clients to reduce concentration) and contingency planning. Professional service firms should track concentration metrics quarterly and take action when concentration exceeds comfort levels.

Real-world example

Michelle's firm tracked total revenue but not concentration. The loss of their largest client led to an immediate 35% decline in revenue and forced layoffs. Post-crisis analysis: the top 3 clients accounted for 62% of revenue, far above the 30% comfort threshold. New concentration tracking: quarterly report of top 10 clients by revenue and percentage, with a target of no single client over 15% and top 3 under 35%. Recovery strategy focused on acquiring and growing mid-sized clients. Three years later, concentration improved to 28% for the top 3, significantly reducing business risk.