The Concentration Risk That Can Destroy a Business Overnight

One client. Half your revenue. Great relationship. Solid work. And then they get acquired, a vendor review happens, and they're gone in 90 days.

That's concentration risk. And it doesn't announce itself until it's already happening.

In this episode, Melissa breaks down the 50% client problem, where else concentration risk hides in your business, and four practical moves to start building resilience without blowing up what's working.

There's homework. It's short. The number might make you a little uncomfortable. That's intentional.

In This Episode

• What concentration risk actually is and why the warning sign is 20%
• Why "they're not going anywhere" is not a risk management strategy
• Vendor and revenue stream concentration: the ones founders miss
• Four moves to build resilience gradually and intentionally
• Your homework: one calculation that tells you a lot

Homework

Pull your revenue from the last 12 months. Calculate what percentage each client represents. If anything is above 20%, you have information worth acting on. 

No Se Habla Taxes is the podcast for creative agency owners who want to understand the financial side of their business — without drowning in spreadsheets. Hosted by CPA and fractional controller Melissa Armstrong, each episode unpacks real operational finance questions through candid stories and practical insight. Subscribe to the newsletter at steadyhandaccounting.com for episode recaps and financial insights delivered straight to your inbox. 

Not sure if your business is healthy or just busy? No Se Habla Confusion is a $500 financial assessment for creative agencies on QBO doing $300K–$3M. I dig into your numbers, find the gaps, and tell you exactly where you stand. Email info@steadyhandaccounting.com — subject line: No Se Habla Confusion. 

Let's connect!

LI: https://www.linkedin.com/in/armstrongmelissacpa/

Website: https://steadyhandaccounting.com/

Transcript

0:10

Hey, welcome back to No Se Habla Taxes. I'm your host, Melissa Armstrong, CPA and fractional controller, and this is the podcast where we talk about the financial stuff no one warned you about when you start at your agency. Today, we're talking about something that I call the 50% problem, and if you have no idea what that means yet, stay with me because by the end of this episode, you might be a little uncomfortable, and that is intentional. Uncomfortable in a good way, like when you finally check your credit card statement after a month of avoiding it. We've all been there. Okay, so I'm gonna tell you about a client situation I've seen play out more times than I would like to admit. Picture this. A founder comes to me. Business is doing well. Revenue is solid. They've got a few clients, and things feel stable. But when I pull the numbers, one client represents about half their revenue. Not a little, half. And here's the thing. They knew it. They just didn't wanna look at it directly because honestly, that client was great. They paid on time. The work was interesting. The relationship f- felt solid. So why would you mess with that? We didn't talk about it for a while, And then that client got acquired by one of those PE firms. New leadership came in, did a vendor review, and they were gone within ninety days. Not because anything went wrong, not because the work was bad, just because someone new decided they wanted to consolidate vendors. And suddenly, half the revenue was just gone. No warning, no real recourse, just gone. That, my friend, is concentration risk, and it is way more common than founders realize. So let's talk about what concentration risk actually is, because it sounds like finance speak, but it's really just a question. If one thing disappears, what happens to your business? Client concentration risk is what happens when one client accounts for a disproportionate amount of your revenue. And the number I use as a warning sign is twenty percent. If one client represents more than twenty percent of what you bring in, I want you to pay attention. Fifty percent or above, that's not a business. That is a problem waiting to happen. Your business is essentially a single client operation that also has a few side relationships. And I know what you're thinking, "But Melissa, this client is great. We have a long relationship. They're not going anywhere." I hear that. I really do. And I'm not saying it isn't true. What I am saying is the great clients get acquired. Great clients have budget freezes. Great clients hire somebody in-house, and suddenly your scope shrinks by seventy percent. Great clients retire. Things change. The risk isn't about the quality of the relationship. The risk is about what your business looks like without them. So here is the exercise I want you to do. Pull your revenue from the last twelve months and calculate what percentage of revenue each client represents, not the dollar amount, the percentage. If any single client of yours is above twenty percent, you now have information you didn't have before. And information is where operational decisions start. Now, I want you to pause here because client concentration is the one everyone talks about, but it's not the only place that it shows up. Vendor concentration is real too. If you have one key subcontractor, one platform, one vendor that your entire delivery depends on, and they raise their prices or shut down or just stop responding to emails, what happens? I've seen agencies built around a single subcontractor, white label partner. Great setup until that partner changed their pricing structure and the margins evaporated overnight. There was no drama, no bad intentions, just a business decision that rippled out. Revenue stream concentration is another one. If all of your revenue comes from project work and you have no retainer base, you're re-earning your business every single month, which is exhausting and it's risky. If all your revenue is retainer-based, but every contract is month to month, you have the same problem, just a different shape. The pattern is the same across all of them. Concentration creates fragility. Diversification creates resilience. And I wanna be clear, I'm not telling you to fire your best client or blow up a vendor relationship that's working. That's not the lesson here. The lesson is awareness. You have to know the fragility, where it is before it becomes a problem. Okay, so let's talk about what you can actually do with this information, because I don't want you to leave this episode feeling doomed. That's not the goal. The goal is to gradually reduce concentration over time. Gradually, not overnight. One, new business activity should be intentional and consistent, not reactive. Most agency founders chase new clients when they need revenue. The problem is, that's exactly when you have the least leverage and the most desperation. Building a pipeline when things are going well means you are never dependent on any one client to stay afloat. Two, pay attention to contract terms. Month-to-month clients are great for flexibility, but they also mean your revenue can evaporate really quick. If you have a client who represents thirty percent or more of your revenue, see if there's a conversation to be had about longer terms, a retainer structure, or something that builds in a little bit more predictability on both sides. Number three, build diversity into your service mix if you can. Not every agency can do this, but if you have one massive client on a massive project, consider what else you can be developing at a smaller scale while that project is running. It protects you and keeps your team's skills broad. And four, which is honestly where I always start, know your numbers. You cannot manage something that you're not measuring. If you don't know what percentage your top client represents today, that is the place to begin. Here's your one action item from this episode. Pull your revenue from the last 12 months. Calculate the percentage each client represents. Write it down. Even if the number makes you a little bit uncomfortable, but especially if the number makes you a little bit uncomfortable. You're not committing to doing anything about it right now. You're just getting honest about where the risk is. Awareness is the first step, and you cannot diversify what you haven't measured. All right. That's all I've got for you today. Concentration risk is one of those things that feels abstract until it's very, very concrete. So I hope this gives you a reason to look at the numbers before you have to. If this episode landed for you, share it with another agency founder. The more of us who are having these conversations, the better. And if you wanna dig into where your business might have some hidden fragility, that is exactly what we talk through in my No Se Habla Confusion assessment. It's $500, it's two hours, and you'll leave with a clear picture of where you actually stand. Reach out at info@steadyhandaccounting.com with the subject line No Se Habla Confusion, and we'll get something on the calendar. Thank you for being here, and I'll see you next episode. Remember, No Se Habla Taxes. Bye.