One Big Customer, One Big Risk: Turnover Drops 40%, the Result Drops Much More

Steady income that is less steady than it looks

A big customer brings stable, predictable income, until it decides to change supplier, reduce orders or close the door. If that customer accounts for more than a third of your turnover, your company carries a risk that is rarely mentioned in contracts.

The customer who sets the terms

Negotiating power shifts to the customer: A customer who knows it accounts for a large share of your turnover has a strong negotiating position and can ask for better payment terms, discounts or extended credit.

A sudden drop in revenue if you lose it: Losing one big customer can immediately threaten the company's liquidity, even if the core business is otherwise healthy.

What it looks like in numbers (an imagined example)

Imagine a turnover of €1,000,000 a year, a margin of 15% (€150,000) and fixed costs of €120,000. The company makes a profit of €30,000.

If a big customer accounts for 40% of turnover (€400,000) and leaves, turnover falls to €600,000, the margin to €90,000, while fixed costs stay at €120,000. The company then has a loss of €30,000.

Turnover fell by 40%, and the result changed by €60,000, from a profit to a loss. That is why concentration is not only a question of revenue, but also of fixed costs that do not disappear with the customer.

For your own case, take the figures from your own financial statements.

Questions to Check

These are not ready-made contract clauses or legal advice, but questions worth thinking about before you accept the terms. The exact wording depends on your contract and the applicable rules.

What share of turnover and of margin does your largest customer account for?

Which part of your fixed costs could you cover without them?

How long is the notice period and are there minimum binding orders?

How long would it take you to replace part of their turnover with new customers?

What is your internal concentration limit, and when did you last check it?

If one customer carries a large part of your turnover, describe your revenue structure and fixed costs to us. You will get a report on concentration risk and diversification options.

Related decision: A Major Client That Holds You and Chokes You.

Prepare questions before making a binding decision

Expert Consilium helps you examine business assumptions, risks and options before you make a decision. A business analysis of the terms shows what they mean for price, risk and flexibility.

Contact us: office@expertconsilium.com | expertconsilium.com

Informational business article. It does not constitute legal, tax, accounting, investment or other regulated advice.