The 30% Problem: When One Client Can Kill Your Business

Nearly a quarter of Australian SMEs say that losing one major account could push them under. That’s not a hypothetical risk assessment. It’s a structural vulnerability sitting at the heart of thousands of otherwise successful businesses.

Customer concentration — the percentage of revenue derived from your largest clients — is one of the most overlooked risks in small business. It’s also one of the most predictable causes of failure.

The mathematics of concentration risk

The standard benchmarks are clear. Most business advisors and investors consider concentration problematic when a single customer exceeds 10-15% of total revenue, or when the top five customers account for more than 25%. Above 20% from a single client, you have a material dependency.

Yet many small businesses operate well above these thresholds without recognising it as a risk. A services firm with three major clients contributing 60% of revenue feels stable — until one of them changes supplier, restructures, or simply delays payment.

The maths is straightforward: if 30% of your revenue disappears, can your business survive the adjustment period? Can you cover fixed costs, meet payroll, and service debt while you replace that income?

For most small businesses, the honest answer is no.

The hidden costs of concentration

Revenue loss isn’t the only risk. High concentration creates secondary problems that compound over time.

Pricing power erodes. When a client knows they represent a significant portion of your revenue, they have leverage. They can demand better terms, longer payment windows, additional services, or simply delay decisions knowing you can’t afford to push back. The relationship shifts from partnership to dependency.

Resource allocation skews. Your best people, your most attention, your operational capacity — all gravitate toward keeping the big client happy. Smaller clients feel the neglect and eventually leave, further concentrating your revenue.

Business value diminishes. If you ever want to sell your business, raise capital, or secure better financing terms, concentration is a red flag. Investors and acquirers routinely apply 20-40% valuation discounts to businesses with high customer concentration. Banks see it as credit risk.

Strategic flexibility disappears. You can’t pivot, can’t experiment, can’t take on new opportunities if they might upset the client you can’t afford to lose. Your strategy becomes hostage to someone else’s priorities.

How concentration happens

Most business owners don’t set out to become dependent on a handful of clients. It happens gradually, often as a result of success.

You land a major account. Revenue jumps. You hire to service the work. The client expands their engagement. You hire again. Meanwhile, your smaller clients receive less attention, some drift away, and the concentration increases further.

By the time you recognise the pattern, your business has been reshaped around a dependency you never consciously chose.

The 30% rule

A practical guideline: no single client should represent more than 30% of your revenue. If they do, you don’t have a customer — you have a business partner who isn’t sharing the risk.

This doesn’t mean turning away large opportunities. It means being deliberate about rebalancing. If you land a major client that pushes you above the threshold, the priority becomes diversification — not through grand strategy, but through consistent effort to build the rest of the book.

The businesses that navigate customer loss successfully aren’t the ones who avoided large clients. They’re the ones who knew their concentration numbers, understood the risk, and built a base that could absorb the loss.

A question worth answering

What percentage of your revenue comes from your largest client? Your top three? Your top five?

If you don’t know the answer immediately, that’s the first problem. If the answer is above the thresholds, that’s the second.

The good news: concentration risk is measurable, manageable, and — with enough runway — fixable. But you can’t manage what you can’t see.

Sources

AB Phillips SME Risk Report 2025; Wall Street Prep; Forbes; Allianz Trade.