Herfindahl-Hirschman Index (HHI) for small business customer concentration
Updated October 7, 2026 · 9 min read
The Herfindahl-Hirschman Index (HHI) is the sum of the squared percentage shares of every customer. US competition authorities use it to measure how concentrated a market is; applied to your own client list, it measures how dependent your revenue is on a few customers. It runs from near 0 (revenue spread across many customers) to 10,000 (one customer).
HHI calculator
Enter your clients and their revenue for the last twelve months to get the HHI, the effective number of clients and the largest-client share. It runs in your browser; nothing is uploaded.
Revenue by client (last 12 months)
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Concentration risk score
- Largest client
- 42.9%
- Top 3 clients
- 81%
- HHI (0 to 10,000)
- 2,773
- Effective clients
- 3.6
- Top 5 clients
- 100%
- New revenue to get largest under 20%
- $480,000
Total revenue $420,000 across 5 clients. Bars turn amber at 15% and red at 25% of revenue.
The HHI formula
HHI = s₁² + s₂² + … + sₙ²
where s is each customer’s share of revenue in percent
- List every customer and its revenue for the same period.
- Divide each customer’s revenue by total revenue and multiply by 100.
- Square each share.
- Add the squares.
In Excel or Google Sheets, with revenue in B2:B50: =SUMPRODUCT((B2:B50/SUM(B2:B50)*100)^2). The effective number of customers is =10000/HHI.
Why the largest-client ratio is not enough
Compare two businesses with $1M revenue and the same 20% largest client:
| Business A | Business B | |
|---|---|---|
| Client shares | 20%, 19%, 18%, 17%, 16%, 10% | 20%, then sixteen clients at 5% |
| Largest client | 20% | 20% |
| Top-5 share | 90% | 40% |
| HHI | 400 + 361 + 324 + 289 + 256 + 100 = 1,730 | 400 + 16 × 25 = 800 |
| Effective clients | 5.8 | 12.5 |
Both look the same on the largest-client ratio. Business A loses most of its revenue if two or three clients leave in the same year; Business B barely notices. The HHI captures that difference, which is why ClientGuard reports both.
HHI thresholds: what the numbers mean
Nobody publishes official HHI thresholds for customer concentration. The reference point is competition law, where the 2023 Merger Guidelines from the US Department of Justice and Federal Trade Commission say “Markets with an HHI greater than 1,800 are highly concentrated”. The 2010 guidelines, now withdrawn, used 1,500 and 2,500 as the moderate and high lines. Borrowed for a client list, a practical reading is:
- Under 1,000: well spread, equivalent to ten or more equal clients.
- 1,000 to 1,800: moderate. Watch the top three or four clients.
- 1,800 to 2,500: highly concentrated, fewer than 5.6 equal clients. Diversification should be a stated goal.
- Above 2,500: the business behaves like four or fewer equal clients. Losing one would be a major event.
Remember this is an analogy: the competition thresholds describe rival firms in a market, not customers of one business. Use the HHI alongside the customer concentration ratio and the thresholds buyers and lenders actually use.
How to use HHI in a small business
- Track it quarterly on the trailing twelve months. The trend tells you whether new business is spreading risk or piling onto existing clients.
- Set a target in effective clients, which is easier to explain to a partner than an index: “we want to behave like at least eight equal clients” means an HHI of 1,250 or less.
- Use it with the largest-client ratio. The ratio shows the worst single loss; HHI shows how fragile the whole book is.
Frequently asked questions
How do you calculate the HHI?
Work out each customer’s share of revenue as a percentage, square each share, and add the squares. Four customers at 25% each give 4 × 625 = 2,500. The result runs from close to 0 (many small customers) to 10,000 (one customer).
What is a good HHI for a small business?
There is no official benchmark for customer HHI. Borrowing the competition-law scale, under 1,000 is well spread, 1,000–1,800 is moderate and above 1,800 is highly concentrated. Above 1,800 the business behaves like fewer than 5.6 equal customers.
What is the effective number of customers?
10,000 divided by the HHI. It tells you how many equally sized customers would give the same concentration. An HHI of 2,500 equals four equal customers, whatever the real count.
What is the Excel formula for HHI?
With revenue in B2:B50: =SUMPRODUCT((B2:B50/SUM(B2:B50)*100)^2). It works the same in Google Sheets.
Get your HHI with every client ranked
Upload a revenue export for a free risk score, or get the $39 audit with the HHI, top 10 clients flagged and a 12-step plan. Or use the calculator now.