When One Client Is Forty Percent of Revenue

A client at forty percent of revenue is not a milestone. It is a term in your business that someone else can exercise at will, and you did not negotiate it.

Owners in that position usually know the number and have made peace with it, because the relationship is good and has been for years. That is precisely why it is worth writing about. Concentration does its damage long before the client leaves, through the price you accept, the terms you agree to, and what your business is worth when you try to sell it.

It costs you before anything goes wrong

You stop negotiating. When one client can end forty percent of your revenue, you do not push back on a scope change, a late payment, or a rate that has not moved in four years. The client does not have to threaten anything. The arithmetic does it.

Your lender sees it even when you do not raise it. Concentration goes straight into a credit assessment. ISED’s credit conditions research shows that in 2025, 75% of small businesses obtaining debt financing had to pledge collateral, up from 66% the prior year, while the average interest rate charged to small businesses fell to 5.8%. Cheaper money, more security demanded. A concentrated receivable book is one of the things that lands a business on the wrong side of that trade.

A buyer prices it. Concentration is one of the first things raised in diligence, and it moves the multiple rather than the add-backs. A business where the largest client is four percent of revenue and one where it is forty percent are not the same asset, even with identical earnings. The valuation mechanics are a separate subject, but the discount is real and it is applied before anyone looks at your addbacks.

Measure three things, not one

Almost everyone measures revenue concentration and stops. Revenue is the least useful of the three.

That last row is the one owners resist. A firm with eight federal contracts across two directorates does not have eight clients. It has two, and possibly one, depending on who signs.

The Ottawa version

This matters locally in a specific way. The federal government spends approximately $37 billion a year purchasing goods and services, and ISED’s profile of SME federal contractors finds those firms tend to be larger, older, more likely to export, and more active in seeking external financing than the broader small business population.

Federal work is good work. It also concentrates in a way that is easy to misread, because a single buyer that pays reliably feels like the opposite of risk. The exposure is not credit risk. It is procurement risk: a standing offer that is not renewed, a category that gets consolidated, a change in delegated authority. None of that appears in an aged receivable listing. The tax and compliance side of federal work is covered separately in federal contracts and Ottawa business tax.

Concentration transmits somebody else’s problem to you

Your largest client’s risks are now your risks, and you have no visibility into them.

In the second quarter of 2026, 34.0% of Canadian businesses expected United States tariffs on Canadian imports to have a negative impact on their business over the next twelve months, rising to 54.0% in manufacturing. If your one large client is a manufacturer, you now carry a share of that exposure without having sold anything to anyone south of the border.

The failure end of this is thinner than people assume, and worth stating plainly rather than dramatising. The Office of the Superintendent of Bankruptcy reports 4,840 business insolvencies in 2025, down from 6,188 in 2024, at a rate of about 1.0 per 1,000 businesses. Your large client probably will not fail. That is not the risk. The risk is that they restructure, get acquired, bring the work in house, or lose the manager who championed you.

Run the same test on the other side of the ledger while you are at it. Most businesses that measure customer concentration have never measured supplier concentration, and the payables ledger usually turns out to be more concentrated than the receivables one. Pricing a single-source supplier risk uses the same measurement and reaches an uncomfortable number faster.

What actually reduces it

Largest client above 25% of revenue?
├── Can you add clients at similar margin?
│    └── Yes → do that, and hold the large one flat
│              Growth by dilution, not by exit
├── Locked into a term contract?
│    ├── Yes → use the term to build the second line
│    └── No  → get one. A contract is not a
│              guarantee, but it converts a
│              surprise into a notice period
└── Cannot dilute (niche, single-buyer market)
     └── Hold cash instead. Size the reserve to
         the notice period you would actually get

The order matters. Dilution first, contractual protection second, cash reserve last, because the reserve is the expensive option and the one owners reach for because it feels active.

There is a fourth response nobody lists because it sounds like a downgrade of the relationship: change the terms with the large client while things are good. Progress billing instead of billing on completion. A deposit on anything with material cost in it. Shorter payment terms on new work rather than a renegotiation of old work. Each of those reduces how much of your cash is sitting inside one relationship at any moment, which is the exposure that actually bites. The mechanics are in credit control.

Whichever route you take, the concentration figure belongs in your cash flow forecast as a scenario, not as a footnote. Model the month that client stops paying. Not stops buying: stops paying, which happens first and hurts sooner. Then decide whether the line of credit covers it and for how long.

None of this argues for turning down a large client. It argues for pricing the exposure into what you do with the money. A business at forty percent concentration should be carrying more cash and less debt than the same business at ten, and most of them carry less cash and more debt, because the large client made everything feel stable.

If you want your revenue, margin and receivables all split by client and the real concentration figure put in front of you, send me the last two year ends. The margin version is usually the one that changes the conversation, because the largest client is frequently not the most valuable one.