Before we get started… |
If you're working harder than ever but your business still can't run (much less grow) without you, that's not a "you" problem…it's a systems problem. |
We work with founders to build a custom "operating system" inside their business (the same process we've used to scale our own $200M portfolio) so the business can scale without the founder doing all the scaling. |
If you want to see how it works, check it out here. |
Ok, back to this week's issue… |
|
|
"Should I fire my best client?" |
A few weeks ago, a business owner popped up on Reddit asking whether he should fire the client that pays half his bills. |
The actual title of the thread: "Should I fire a client that's 50% of my revenue? Losing my mind here." |
Did you catch that? He’s “losing his mind”… |
…over his best client!?! |
The internet, naturally, gave him unhelpful advice: |
Half the comments said, "Fire them before they fire you." |
The other half said, "Are you crazy? Serve them harder and pray." |
Both camps missed the point (and the solution)… |
There IS a fix for this, and I'm going to show you what it is in a minute. I’ll even give you a copy-paste AI prompt that runs the whole thing for you in about 60 seconds. |
But before I give you the solution, we first need to discuss why customer concentration is such a problem for small businesses… |
First, it hurts your valuation. Buyers get nervous when a single client climbs north of 20 – 25% of revenue, and most will discount hard or walk entirely. Nothing says "fragile" quite like one logo that can erase half the P&L with a single phone call. Second, it hurts your negotiating power. You’ll tolerate scope creep, late invoices, and margin squeeze from a 50% client that you'd never tolerate from a 5% client. Third (and this is the sneaky one), it hurts your judgment. Every strategic decision…new offers, pricing changes, who to hire… gets filtered through, "But what would [Whale] think?" You effectively abdicate control of your company to your largest account.
|
You own the business, but they own YOU. |
The fix? It's called The Customer Concentration Audit. Here’s how it works… |
Step 1: Divide the Pie |
Rank every client by their percentage of your trailing 12-month revenue on a simple spreadsheet. |
Not this month's revenue… trailing twelve, because whales are lumpy, and one big invoice (or one slow quarter) will lie to you. |
Fair warning: the number is almost always worse than your gut is telling you it will be. The owner who guesses their top client is "maybe 20%" opens the spreadsheet and finds 38%. |
Step 2: Find the Line |
Now grade every slice of that pie: |
Over 25% of revenue is a whale, because that's roughly where acquirers start discounting the price or walking away entirely (discounts of 15 – 30% are common when a single client crosses that line). 10 – 25% is a watch-list client. We call them “baby whales” because they're one good year away from becoming a full-grown whale. Under 10% is just a client. Congratulations, that's what they're supposed to look like.
|
One caveat: if you're in a vertical where concentration is structural (government contractors, enterprise services), the line moves, but the audit doesn't. |
Buyers in those spaces underwrite contract terms and relationship depth instead…which is exactly what the next step covers. |
Step 3: Run the Three P's on Every Whale |
For every client over the line, you're going to check three boxes: Paper, People, and Pipeline. |
Paper. Pull the contracts for each whale and baby whale and answer three questions: |
What's the notice period? When's the auto-renewal date? Is there a termination-for-convenience clause (the clause that lets them quit any time, for any reason)?
|
Most business owners open that contract and discover it only locks THEM in: the client can walk with 30 days' notice, but you've committed your pricing, your capacity, and your team for the full 12-month term. |
Fix that asymmetry at the next renewal, and put the renewal date on your calendar so it doesn’t catch you off-guard. |
People. Count the relationships. If the whale's business rests on ONE champion inside their org, then your revenue is really resting on that one person's job security. |
Champions change jobs without warning, so assign someone (not you) to build a second and third relationship inside that account this quarter. |
Pipeline. This is the one everybody skips, because it feels like a marketing project instead of a risk project. |
Here's the move: leave the whale alone and grow everything around it. |
Set one number…"By [date], no client exceeds X% of revenue"…then reallocate marketing spend and sales attention until the math works. The whale stays the same size. The pie gets bigger. |
I call it dilution by growth, and it's the only version of this fix that doesn't cost you a dollar of revenue. |
And if you're thinking, "But my whale is a GREAT client"…perfect. Nothing in this system asks you to serve them less. It just makes their departure survivable. |
Great clients respect vendors who don't need them, and desperate vendors get squeezed. |
Step 4: Put It on the Calendar (and Let AI Run It) |
Run this same ritual at the end of every quarter: rebuild the spreadsheet, recheck who’s above line, rerun the three P's on anyone over 25%… then 10%. |
And put it on your calendar now, because if it’s not on the calendar, it’s not getting done. |
Here's an AI prompt that automates most of this process. Just copy and paste it into Claude or ChatGPT, along with your client revenue list: |
Here is my client revenue for the trailing 12 months: [paste list].
Calculate each client's percentage of total revenue. Flag every client over 25% as HIGH concentration risk and every client between 10 – 25% as WATCH.
For each flagged client, build a de-risk checklist covering: (1) the contract notice periods and renewal dates I should verify, (2) relationship depth…how many contacts we have inside the account and who owns each one, and (3) a dilution target showing what total revenue growth would bring this client under 20% without losing a dollar of their business. Format it as a one-page brief. |
|
|
So…back to our Reddit friend… |
Should he fire the client that’s paying half his bills? |
If they're toxic, sure. Fire away, and figure it out. |
But if their only crime is being big, don't fire them… |
…outgrow them. |
⚡️ Action Step: Pull your trailing 12-month revenue by client and draw the pie…it takes 10 minutes. If anyone's over 25%, read their contract this week and find the notice-period asymmetry. Then set your dilution target ("no client over 20% by [date]") and reallocate your sales and marketing budget/resources to make it happen. |
Give it a shot and let me know how it goes… |
-Ryan |
Ryan Deiss
Co-Founder and CEO, The Scalable Company |
P.S. We help our clients de-risk issues like this all the time…client concentration, key-person dependence, founder dependence, all of it. |
But here's the truth: if your business doesn't have the right systems in place, none of it matters. That's why the first thing we do with every client is install a custom "operating system" inside their business…so it runs (and grows, and becomes worth owning) without depending on you. |
Click here to see how it works. |
I-270 Blitz Yields Hundreds of Citations
