How the numbers are calculated
Concentration ratio = a client's revenue ÷ total revenue × 100. For the top three, add their three ratios together.
HHI = the sum of every client's percentage share, squared. A business with four equal clients (25% each) has an HHI of 4 × 25² = 2,500. One client paying 60% and four paying 10% each gives 3,600 + 4 × 100 = 4,000.
Risk score blends the largest-client ratio (70%) and the HHI (30%) into a 0–100 scale: under 25 is low, 25–49 medium, 50–74 high and 75 or more critical.
What counts as high concentration?
There is no single legal limit for private businesses, but a few reference points are widely used. US public companies must disclose any customer that makes up 10% or more of revenue. Many acquirers, lenders and investors ask detailed questions once a customer passes 15–20%, and may reduce valuations or add earn-outs when one customer is much larger than that. See customer concentration risk explained and the 20% client rule.
Frequently asked questions
How do you calculate customer concentration?
Divide each customer's revenue by your total revenue for the same period and multiply by 100. The largest result is your top-customer concentration ratio. Add the top three for your top-3 share.
What is a good customer concentration ratio?
A common rule of thumb is that no single customer should exceed 10-20% of revenue. US public companies must disclose any customer above 10% of revenue, and many buyers and lenders look closely at anything above 20%.
What does the HHI tell me?
The Herfindahl-Hirschman Index adds up the squares of every customer's percentage share. It runs from near 0 (revenue spread across many customers) to 10,000 (one customer). Unlike the top-client ratio, it reflects the whole client list.
What is the effective number of clients?
10,000 divided by the HHI. It tells you how many equally sized clients would give the same concentration. Ten clients with an effective number of 3 behave like a three-client business.