Every memorandum discloses customer concentration. The top client is thirty percent of revenue, the top three are sixty, and it sits in a table near the front where nobody can claim it was hidden. Buyers read it, note it, and apply a discount that is usually a single number.
The single number is the problem. Concentration is not one risk. It is at least three, they behave differently after closing, and a business can be badly exposed on one of them while being perfectly safe on the others. Pricing them as one blended haircut means overpaying for some businesses and walking away from others that were never as fragile as the table suggested.
WHOSE RELATIONSHIP IS IT
The first question is not how large the account is. It is who the client believes they are buying from.
A contract with a procurement department is an asset of the business. It was competed for, it is administered by people whose job is administering it, and it survives a change of ownership because nobody involved has a personal stake in who owns the vendor.
A twelve-year friendship with the founder is a different thing entirely, and it is frequently priced the same. The revenue looks identical in the model. What differs is what happens in the twelve months after the seller stops answering the phone, and that is not a question the memorandum is organized to answer.
The diligence version of this question is specific and answerable. Who at the client signs the invoice approval. Who has the vendor relationship in their objectives. When something goes wrong on a Friday afternoon, who gets called, and does that person still work at the business after closing.
WHAT THE CONTRACT ACTUALLY COMMITS
The second risk lives in the paper, and it is the one most often assumed rather than read.
A master services agreement with a three-year term sounds like three years of revenue. Read the termination clause. Termination for convenience on thirty days notice is extremely common, and it converts a three-year contract into a thirty-day contract with a longer cover page. Volume language matters the same way: a stated annual volume is often an estimate rather than a commitment, and the difference is the entire concentration exposure.
Auto-renewal cuts the other direction and is worth more than buyers usually credit. An account that renews unless someone actively cancels has a very different decay profile from one that must be re-won every year, even when the two look identical on a revenue line.
HOW THE WORK GETS RENEWED
The third risk is procedural and it is the one that shows up on a calendar.
Some large accounts are competitively rebid on a fixed cycle. Others renew silently until somebody at the client decides to run a process. The first kind has a known date on which the business is genuinely at risk, and a buyer can diligence the last two cycles to see how the incumbent performed. The second kind has no date, which feels safer and is not — it means the risk arrives without warning, usually when a new decision maker at the client wants to demonstrate that they are examining costs.
Neither pattern is inherently worse. But they call for different things after closing, and a buyer who has not distinguished them cannot plan for either.
WHAT TO PRICE
The exposure is the product of the three, not the largest of them.
An account that belongs to the business, sits under a real commitment and renews on a known cycle can carry a substantial share of revenue without being the thing that breaks the deal. An account that belongs to the departing founder, sits under a thirty-day convenience clause and renews at the client's discretion is a serious problem at half the size, and no amount of contract term makes it otherwise.
That is the point most models miss. Concentration is not a number to be discounted. It is a structure to be understood, and the work of understanding it is almost entirely conversations rather than analysis.
GEX Management advises buyers on commercial and operational diligence in the lower middle market. If a deal is turning on a concentration figure, the useful next step is usually taking that figure apart. Start a conversation.