Term · Risks & Red Flags
Customer and revenue concentration
In briefCustomer or revenue concentration measures what share of revenue, earnings or receivables is attributable to a few customers. If a single major customer drops out, growth, capacity utilisation, working capital and covenants often come under pressure at the same time.
Definition
Customer or revenue concentration measures what share of revenue, earnings or receivables is attributable to a few customers.
How it is calculated
Formula. Example: revenue share of the top-1, top-5 or top-10 customers; additionally check earnings contribution, receivables and contract terms.
Why it matters for small caps
The loss of a single major customer can burden growth, capacity utilisation, working capital and covenants at the same time.
Common misreadings
- Only the revenue share is considered. Bargaining power, margin, notice period and substitutability are equally important.
In the process
Frequently asked
What is revenue concentration?
It indicates how strongly revenue depends on a few customers. It is common to look at the shares of the largest one, five or ten customers.
How do you assess customer concentration?
In addition to the revenue share, what counts is the earnings contribution, receivables and contract terms. Bargaining power, margin and the substitutability of customers also belong to it.
What risk does high customer concentration carry?
If a major customer drops out, it can hit several metrics at once. Anyone who looks only at the revenue share easily underestimates the dependence.
Related terms
Sources
Primary
IFRS Foundation – IFRS 8 Operating Segments
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-8-operating-segments/
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-8-operating-segments/
Methodology
IFRS Foundation – IFRS 7 Financial Instruments: Disclosures
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-7-financial-instruments-disclosures/
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-7-financial-instruments-disclosures/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.