A 10.4 per cent client takes 56 per cent of the profit
Customer Concentration Risk
When a customer leaves, their revenue goes and your fixed costs stay. The profit fall is always a multiple of the revenue fall, and this shows you yours.
Customer Concentration Risk
What losing your largest customer does to profit, which is always worse than what it does to revenue.
Why profit falls so much harder than revenue
When a customer leaves, their revenue goes and their variable costs go with it. The fixed costs stay, and they were being paid partly out of that customer's contribution.
The fall in profit is the customer's revenue share times your operating leverage, exactly. A company with a DOL of 5 loses five points of profit for every point of revenue that walks.
Buyers and lenders start asking questions when one customer passes about 15 per cent of revenue, and they price the risk long before you feel it.
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The same arithmetic in Excel, with the fall worked for each of your top five customers rather than only the largest.
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