Is Your Business Too Dependent on One Customer? How to Reduce Concentration Risk
At KAAS we know many businesses grow quickly by serving a single strong customer. It feels efficient, predictable, and commercially attractive. Yet this reliance can become one of the most significant risks a company faces. When one client accounts for a large share of revenue, even a small change in their behaviour can have major financial consequences. Concentration risk often goes unnoticed until it begins to hurt cash flow, profitability, or strategic stability.
The danger lies in the imbalance. A business may deliver excellent service, yet it has limited control over a client’s internal decisions, financial health, or market challenges. If that client delays payments, reduces orders, or switches suppliers, the impact can be immediate. Many SMEs struggle to replace lost income quickly enough, and the operational disruption can be severe.
To understand your exposure, start by analysing revenue distribution. If any single customer accounts for more than 20 to 30 percent of turnover, it is worth reviewing the risks. This threshold varies by industry, but the principle remains the same. High dependency reduces resilience and limits your negotiating power.
Improving diversification begins with strengthening your pipeline. Identify the sectors or customer types where you have a competitive advantage and focus on expanding within those areas. A structured approach to lead generation creates a steady flow of opportunities and reduces the pressure associated with one dominant client.
Pricing should also be part of the discussion. Over reliant businesses often offer favourable terms to keep their key customer happy. This can erode margins and make it difficult to serve other clients profitably. Reviewing your pricing strategy ensures that your efforts are rewarded properly and that your business remains attractive to new clients.
Operational flexibility is another important factor. When resources and processes are built around the needs of one customer, change becomes difficult. Standardising services where possible and improving internal systems allows you to serve a broader market without increasing cost or complexity. A more adaptable operation is better positioned to grow steadily and withstand market shifts.
Regular financial forecasting adds an extra layer of protection. It helps model scenarios where orders reduce or payment terms change. With that insight, you can plan contingencies, protect cash flow, and make informed decisions about investment and staffing.
Reducing concentration risk is not about abandoning valuable clients. It is about creating a healthier balance that safeguards long term stability. A diversified customer base provides more predictable income, greater strategic control, and the confidence to grow on your terms.
If you would like to discuss your business needs. Call Kildare Audit & Accountancy Services on +353 45 432313 or email reception@kaas.ie.
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