Blog · Board and management reporting
Three ways to measure customer concentration from a revenue ledger, top-n share, the Herfindahl index and the count to half, what each is good for, a worked example, why the measure is reported per segment and per rep as well as for the company, and how to tell healthy concentration from dependency.
Every board deck has a top-ten-customers slide. Few have the same measure per segment or per rep, and fewer trend it. This guide gives three measures of customer concentration from a revenue ledger, a worked example, the roll-up, and how to separate a healthy concentration from a dependency.
| Measure | Formula | Use |
|---|---|---|
| Top-n share | revenue from the largest n customers ÷ total revenue | Board reporting; n = 1, 5, 10 |
| Herfindahl index | Σ (each customer's share)² | Trending; sensitive to the largest |
| Count to half | number of customers, largest first, needed to reach 50% of revenue | Sales action; how many relationships carry the business |
All from the same ledger, all per period.
Customer identifiers only.
Company revenue $42m across 380 customers.
| Measure | This year | Last year |
|---|---|---|
| Top 1 | 14% | 9% |
| Top 5 | 38% | 31% |
| Top 10 | 52% | 46% |
| Herfindahl | 0.041 | 0.028 |
| Count to half | 9 | 13 |
Revenue grew. Every concentration measure rose. Four fewer customers carry half the business than a year ago. That is the finding, and the level of any single number matters less than the direction of all of them.
The company's top customer at 14 percent is one rep's top customer at 61 percent. Split the measures:
| Rep | Revenue | Top 1 | Count to half |
|---|---|---|---|
| R-04 | $6.1m | 61% | 1 |
| R-11 | $4.8m | 18% | 6 |
| R-17 | $3.9m | 12% | 9 |
Rep R-04's number is one relationship. That is a coverage and succession question the company-level figure could not raise.
Σ customers' revenue = invoiced revenue = Σ reps = Σ segments
If the customer roll-up does not match the ledger, the shares are wrong. Check the identity before reading the measures.
| Concentrated customer | Healthy signs | Dependency signs |
|---|---|---|
| Contract | Multi-year, with volume commitment | None, or expiring |
| Sites and products | Several of each | One site, one product |
| Contacts | Multiple, recent | One, stale |
| Trend | Growing | Shrinking |
The concentration measure says where to look. The account's own detail says what it is.
Company level only. The rep with one customer is invisible.
Level read without trend. A top ten at 52 percent is fine in some businesses and alarming in others. The move from 46 is the finding either way.
Roll-up not checked. Duplicate customer records split a large customer into two smaller ones, and the concentration looks lower than it is.
Read as bad news by default. Concentration in the right customer is what a good sales team produces. Look before reacting.
Mapped once, the revenue ledger produces all three measures per company, per segment and per rep every quarter, trended, with the roll-up checked. Covirage builds this from the export as it is. The concentration term has the short definition, and the board narrative guide covers how the number is presented with its source.
There is no universal threshold. Lenders and acquirers often look hard at a top customer over 10 to 15 percent, or a top ten over 50 percent, but the right comparison is the company's own history and its segment. Rising concentration with a static customer count is the signal, whatever the level.
No. Concentration in a growing, contracted, multi-site customer is a strong relationship. Concentration in a customer with no contract, one contact and a shrinking order is a dependency. The number says which to look at; the account view says which it is.
Sum every customer's share of revenue squared. A single customer at 100 percent scores 1.0; a thousand equal customers score 0.001. Trend it; the level is hard to interpret alone, the direction is not.