Your customers are locked in

Every business has a biggest customer. The question a buyer asks is simple: if that customer walked, what happens to you?

If one customer is a big share of your sales, a buyer sees a single point of failure. You see a long, loyal relationship. The buyer sees fourteen years of risk that has not blown up yet. Both of you are looking at the same customer. You are looking at trust. The buyer is looking at what happens when the trust ends.

The numbers are steady across hundreds of deals in the Pratt's Stats record. When one customer is under 15% of your revenue, the price cut for concentration is small. Between 15% and 30%, it grows, often 8% to 14% off the multiple. Over 30%, it gets steep, often 20% to 30%, and the buyer stops asking "how do I price this risk" and starts asking "am I buying a company, or just a customer relationship."

Recurring revenue works the same way in reverse. Revenue that repeats under contract is worth more than revenue you have to win again every year. Businesses with 70% or more recurring revenue trade one to three turns higher than otherwise equal businesses at 30% or less. A buyer prices repeating revenue like an annuity. They price one-off project work like a bet that has paid off so far.

Here is the trap. You cannot conjure new customers in 24 months. So the fix is not "go diversify fast." The fix is to make the revenue you already have read better to a buyer.

Four moves.

First, paper. A 14-year handshake should be a contract. A multi-year agreement with fair terms and named contacts does not change the sales. It changes how the sales read. Buyers pay more for documented relationships than for undocumented ones, even when the money is identical.

Second, depth. One contact at your big customer is a single point of failure. Three contacts, across buying, operations, and senior leadership, make it a relationship the company has, not one you have. When the buyer asks who you know at the customer, the right answer is three names.

Third, do the math in reverse. If a customer is 31% of your revenue, ask what share of their spend you are. If you are a small slice they cannot easily replace, you are durable. If you are most of their spend in a category they could consolidate, you are exposed, because sooner or later someone asks why they have not consolidated.

Fourth, the trend. Buyers price direction. A business that was 42% concentrated two years ago and is 31% today is diversifying. A business that was 28% and is now 31% is concentrating. The diligence team can see the trend in your books, and they read it.

For recurring revenue, the honest move is the smaller one. You may not get from 30% to 70%. But you can move from 30% to 45% and show the buyer how you did it. A clear program to turn one-off customers into contract customers, with real results, is itself worth paying for. Buyers price the trajectory, not just the snapshot.

One more thing on renewals. If every big contract renews in the same quarter, that quarter is a cliff. Stagger the renewal dates across the year. A buyer who sees renewals landing month by month sees a business that does not bet everything on one season.

The customer that has carried you for fourteen years is your pride. In its current form, it can also be the biggest single cut a buyer takes. The work is to lock it in, on paper and on the trend line, so that the revenue a buyer worries could walk instead looks like revenue that will stay.