Customer Concentration: Why All The Fuss?
By Frank Voisin: A recurring theme on my site has been the significant risks associated with investing in companies whose revenues are highly concentrated among a small number of customers. I have never written a post directly addressing this subject, but I have received a few emails over the years that lead me to believe I should. These emails suggest that my wholesale avoidance of companies with highly concentrated revenues is misguided, and the argument seems to boil down to this:
Fewer customers allows for more focus and better service, which translates into a closer relationship and more stable revenues. These revenues are also lower cost to the company than would otherwise be the case where there would be significant costs associated with finding and onboarding many smaller clients.
There are some good points here, and to be clear, I am not suggesting that customer concentration automatically disqualifies a company from being aComplete Story »