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How much of my revenue depends on one customer?

Prepared by the Flawian team · Reviewed .

Divide your biggest customer's sales by your total sales for the same period. Then work out what their sales leave after their own variable costs, because that is what you would lose. In the example, a customer worth 40% of sales takes $40,000 of contribution with them, and $10,000 of profit becomes a $30,000 loss.

Principle and explanation

Losing a customer removes what their sales leave after variable costs, while fixed costs stay, at least until you change them. In a profitable firm, profit falls by a larger percentage than sales only when this contribution is a higher percentage of the customer's sales than profit is of all sales. The share shows how much is at stake; the lost contribution shows what the month or year would look like without them.

Worked example

Illustrative scenario. These are fictional inputs, not customer results.

A firm sells $200,000 a year; its biggest customer buys $80,000. Every sale leaves half its price after its own variable costs, and fixed costs are $90,000 a year.

A fictional firm's year with and without its biggest customer
With the customerWithout the customer
Sales$200,000$120,000
Left after variable costs (50%)$100,000$60,000
Fixed costs$90,000$90,000
Profit$10,000−$30,000

The customer is 40% of sales, but losing them turns a $10,000 profit into a $30,000 loss.

What this does not show

  • It sets no safe share for one customer.
  • A loss can be gradual, and other customers or lower costs can offset part of it; it shows the full loss with nothing else changed.
  • It says nothing about the business's value or about financing terms.

First step

List last year's sales by customer, work out your biggest customer's share and what their sales leave after variable costs. Subtract that amount from last year's profit.

Sources