Customer revenue concentration: practical guide

What to prepare

• Gather supplier quotes, invoices, time records and the actual scope of the job or business decision.
• Separate revenue from VAT, direct costs from overheads, and profit from the timing of cash receipts.
• Use the same accounting period and currency for related inputs.

Understand the inputs

Revenue by customer (€; commas)

Include every customer on the same annual revenue basis; maximum 100 entries.

The calculation method

Concentration index = sum of squared percentage revenue shares. Equal-sized equivalent = 1 ÷ sum of squared decimal shares.

Worked example

Illustrative inputs and their result.

Example inputs

Revenue by customer (€; commas)

100000, 50000, 30000, 20000, 10000, 10000

Calculated example result

Largest Customer Percent

45.45%

Top Three Customer Percent

81.82%

Revenue Concentration Index

2,892.56

How to interpret the result

A profitable estimate can still create a cash shortfall. Read the cost and timing assumptions as well as the headline profit, price or return; the result is a scenario, not a sales forecast.

Keep the scope constant while changing price, volume, supplier cost or time. A lower-sales or higher-cost case helps show whether the decision depends on an optimistic assumption.

Common mistakes to avoid

• Do not confuse markup on cost with margin on selling price.
• Include work that is easy to miss, such as travel, setup, rework and administration, where the model supports it.
• Do not treat tax collected or an unpaid invoice as freely available cash.

Assumptions and sources

The index is a commercial dependency measure. It does not imply legal competition thresholds or a universal safe concentration.

Related business guides

• Margin & markup pricing: practical guide
• Cost of goods sold: practical guide
• Break-even analysis: practical guide
• Irish corporation tax: practical guide
• Customer acquisition & value: practical guide
• Stock turnover & DSO: practical guide