What percentage is safe?

Under 20% from any single customer is the common rule of thumb, and like all rules of thumb it depends on the contract, the notice period and how easily the work could be replaced.

Should I tell them I am reducing my dependence?

No need. It is your business risk to manage, and framing it as a concern about them turns an internal decision into an awkward conversation.

Is it worth taking lower-margin work to diversify?

Sometimes, deliberately and temporarily. What is not worth it is drifting into unprofitable work and calling it diversification.

← Answers

What if one customer is most of my revenue?

Anything over about a fifth from one customer is a risk worth naming, and over a third means they effectively set your prices, your schedule and your payment terms. You may not feel it while the relationship is good. You will feel all of it at once if they leave, merge, or change buyer.

It is not disloyalty to notice

Owners avoid this thought because the customer has been good to them. Concentration is a structural fact, not a judgement about anyone. The same customer can be excellent and be the largest single threat to the business at the same time.

The hidden cost is in what you cannot say

When one client is a third of revenue, you cannot really push back on a late payment, an unreasonable date, or scope that keeps growing. That shows up as thinner margin on your biggest account, which is exactly backwards.

Fix it by adding, not by cutting

Nobody sensible fires a large customer to reduce concentration. You dilute it by winning others — which takes time, which is why this is worth starting while things are good rather than after the phone call.

Know what happens on day one

If they went tomorrow: how many weeks of payroll do you have, what would you cut, who would you have to let go. Owners who have never answered that make the worst decisions in the first fortnight, because they are deciding while frightened.

Also asked

What percentage is safe?: Under 20% from any single customer is the common rule of thumb, and like all rules of thumb it depends on the contract, the notice period and how easily the work could be replaced.
Should I tell them I am reducing my dependence?: No need. It is your business risk to manage, and framing it as a concern about them turns an internal decision into an awkward conversation.
Is it worth taking lower-margin work to diversify?: Sometimes, deliberately and temporarily. What is not worth it is drifting into unprofitable work and calling it diversification.

Written for your trade

This is the kind of thing Solomon works through with owners using their own numbers. See how it works →