The short version
- Buyers start to worry when the top one to three customers bring in more than about 15 to 20 percent of sales.
- The discount often runs close to that share, and some buyers walk away.
- Long contracts, many contacts inside the customer and years of history all help.
- Earnouts and a transition period can bridge the gap.
Why Buyers Worry
A buyer pays today for profit expected over the next several years. If one customer could leave and take most of the profit with it, the buyer is paying for a risk. Lenders feel the same way and may limit what they will lend.
Buyers look back three to five years. A company that has depended on one customer for that long will need time to change the picture.
Concentration Is Common Here
Government contractors may have one command as their main customer. Ship repair firms may work mostly for one yard. Suppliers in Newport News may sell mostly to one shipbuilder. None of that makes a company unsellable, but it shapes the deal.
See finding a buyer for your government services contractor and finding a buyer for your ship repair subcontractor.
Is It Really One Customer?
Sometimes what looks like one customer is several separate buyers under one umbrella, such as different programs, departments or locations that each place their own orders. If so, show the breakdown. It can reduce the risk a buyer sees.
Show How Solid the Relationship Is
- Written contracts with years left and renewal history
- Several people at the customer who know your team, not just you
- Performance reviews, awards or other proof of good work
- A record of keeping the customer through changes in their staff
Deal Structures That Help
When the risk is real, structure can close the gap. Part of the price may be paid as an earnout tied to keeping the customer. You might stay on for a set period to hand the relationship over, or keep a small stake for a few years.
These terms shift some risk back to you, so read the details. Our guide on handling an unsolicited offer covers how such terms show up in a letter of intent.
What Happens if the Customer Is Sold
A customer can be bought, merged or moved, and its new owners may bring their own suppliers.
Buyers will ask how your contracts handle a change at the customer. Clauses that let the customer end the contract on short notice are worth reviewing with your attorney.
Spread the Revenue if You Have Time
If a sale is a few years away, adding customers is the surest way to raise the price. Even a modest drop in the top customer's share makes a buyer more comfortable.
A broker can tell you how buyers would see your current mix. Request a sale estimate to find out.