# Revenue Concentration Risk

## Quick Definition
The vulnerability created when a large percentage of revenue comes from a small number of customers or products.

## What is Revenue Concentration Risk?
Revenue Concentration Risk measures your dependence on a few customers, products, or channels for most of your revenue. High concentration means losing one customer or product could devastate your business.

## Why Revenue Concentration Matters
Investors scrutinize concentration risk heavily. A SaaS company where one customer represents 40% of ARR has a single point of failure. If that customer churns, your business model breaks. Acquirers apply significant discounts to concentrated businesses.

For ecommerce founders, concentration might appear in channel dependence. If 80% of sales come from Amazon, you are one algorithm change away from disaster.

## Measuring Concentration
Common thresholds: concern starts when any single customer exceeds 10% of revenue. Red flags appear above 25%. Some investors use the Herfindahl-Hirschman Index (HHI) for more sophisticated analysis.

### Formula
- Single Customer Concentration = Customer Revenue ÷ Total Revenue × 100
- Top 5 Concentration = Top 5 Customers Revenue ÷ Total Revenue × 100

### Example
Your SaaS company has $1,000,000 ARR:
- Customer A: $200,000 (20%)
- Customer B: $150,000 (15%)
- Customer C: $100,000 (10%)
- Remaining customers: $550,000 (55%)

Your top 3 customers represent 45% of revenue. If Customer A churns, you lose 20% of ARR overnight. This concentration risk will concern investors.

## Related Terms
- [**Customer Concentration**](/content/terms/customer-concentration/index.html): The degree to which revenue depends on a small number of large customers.  
- [**ARR (Annual Recurring Revenue)**](/content/terms/arr-annual-recurring-revenue/index.html): The total value of recurring revenue normalized to a one-year period, calculated by multiplying MRR by 12.  
- [**MRR (Monthly Recurring Revenue)**](/content/terms/mrr-monthly-recurring-revenue/index.html): The predictable revenue a subscription business expects to earn each month from active subscriptions.

## See These Metrics in Action
Futureproof automatically tracks MRR, ARR, churn, runway, and more — so you can stop calculating and start scaling.