Herfindahl-Hirschman Index for Small Business (Easy Calculator)

10 min read · Updated April 2026

The Herfindahl-Hirschman Index (HHI) is the same metric the U.S. Department of Justice uses to evaluate market concentration in antitrust cases. It's also the most accurate way to measure customer concentration risk in your own business.

Why the simple top-client ratio isn't enough

The standard concentration ratio (top client divided by total) tells you how exposed you are to your biggest customer. But it misses important nuance.

Compare two businesses with $1M revenue:

• Business A: Top client 20%, then 19%, 18%, 17%, 16%, 10%. Top 5 clients = 90% of revenue.
• Business B: Top client 20%, then 5%, 5%, 5%... spread across 30 small clients.

Both businesses look identical by top-client ratio. They're vastly different in resilience. HHI captures this difference.

How HHI works

HHI is calculated by squaring the percentage market share of each customer, then summing those squares.

For Business A above: 20² + 19² + 18² + 17² + 16² + 10² = 400 + 361 + 324 + 289 + 256 + 100 = 1,730

For Business B above: 20² + 5²×16 = 400 + 400 = 800

Lower HHI means more diversified. Higher HHI means more concentrated.

HHI thresholds for service businesses

• Below 1,000: Well-diversified. Healthy.
• 1,000-1,800: Moderate concentration. Monitor.
• 1,800-2,500: High concentration. Take action.
• Above 2,500: Critical. Immediate diversification required.

Note: these thresholds are adapted from antitrust standards. Pure SaaS companies can run higher because product churn is more stable than service relationships.

Calculating your HHI in 5 minutes

1. List all customers and their annual revenue.
2. Calculate each customer's percentage of total revenue.
3. Square each percentage.
4. Sum the squares. That's your HHI.

In Excel: =SUMPRODUCT((revenue_range/SUM(revenue_range)*100)^2)

Why both metrics matter

The top-client ratio tells you the worst-case scenario: what happens if your biggest customer leaves. HHI tells you overall fragility: how concentrated your entire customer base is.

A business with a high top-client ratio but a long tail of smaller clients can absorb the loss of #1. A business with a moderate top-client ratio but high HHI overall is brittle to multiple simultaneous shocks.

Track both, monthly

Combined, these metrics give you a complete picture. Top-client ratio for acute risk. HHI for chronic risk. Track both monthly. ClientGuard calculates both automatically when you upload your revenue data.