Red flag explained · Customers and retention
Top customer above 25% of revenue: concentration risk
Short answer: When one customer, sponsor or partner is more than a quarter of revenue, a large part of the profit depends on that one relationship surviving the sale. Ask whether there is a contract, how long it runs, and whether the customer knows about the sale. Price the deal as if they might leave.
When the checker raises it
Raised as high severity when the listing states that the top customer, client or account is more than 25% of revenue.
Why it matters
Large customers renegotiate when ownership changes. Some contracts let them leave on a change of control. Others rest on a relationship with the founder.
A simple test: work out payback without that customer. If the deal no longer works, you are buying one contract with a business attached.
A worked example
Composite example, not a real listing
Asking price: $58,000
Average monthly revenue: $3,300
Average monthly profit: $2,700
Top customer: largest sponsor is 35% of revenue
Business age: 3 years
Owner hours: 8 hours per week
Traffic or revenue sources typed in: Email 70%, Social 20%, Referral 10%.
What the red-flag checker returns: payback of 21.5 months on average monthly profit, and this flag:
High Top customer is 35% of revenue
If that customer leaves after the sale, a large part of the profit leaves with it.
Ask: Is that customer under contract, and have they been told about the sale?
The same example also raises: Email is about 70% of traffic, No churn figure for a recurring-revenue business, No connected data source mentioned.
What to check
- Ask whether that customer is under contract, until when, and whether the contract can pass to a new owner.
- Ask whether they have been told about the sale.
- Work out payback with that customer's revenue removed.
Questions to send the seller
- Is that customer under contract, and have they been told about the sale?
- What share of revenue comes from the top 1 and top 3 customers, partners or programs?
- Is the largest customer or partner under contract, when does it end, and do they know about the sale?
- Are any customers, partners or suppliers personal contacts of yours who may not stay after a sale?
Related flags
Useful next
- Buying a newsletter
- Free red-flag checker: paste a listing and see which flags it raises.
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The checker is a set of plain rules, not an AI model, and its flags are prompts for questions, not verdicts. Composite examples are invented. Informational screening only, not investment, legal or tax advice.