Concentration Risk

A broad and diverse customer base increases the value of your business. Relying on a small number of key clients creates dependency and risk. If one of those major clients leaves, it could significantly impact your revenue.

Concentrated customer bases are associated with greater risk and, therefore, lower valuation multiples. Businesses that enjoy a broad community of customers and are not dependent on one or two major accounts will command higher earnings multiples. Similarly, revenue based on a few large contracts can also garner lower multiples due to the periodic nature of those income streams.