A few big customers might look like a win—but they could quietly be putting your whole business at risk. If one of them leaves, delays payment, or squeezes your margins, the fallout can hit fast and hard. Many manufacturing owners don’t see the danger until it’s already too late. This article shows you how to spot the problem, fix it, and protect your business without sacrificing growth.
Most manufacturing businesses don’t think they’re overly dependent on a few customers—until they take a closer look. It’s easy to mistake volume for stability. But when a small handful of buyers control most of your revenue, the risk isn’t just real—it’s bigger than it looks on paper. The good news is you can rebalance your customer mix without firing great clients or turning your world upside down. You just need to know what to watch for and what to do next.
What is customer concentration—and why it creeps up without warning
Customer concentration is when a small number of customers account for a large portion of your revenue. This could be one company bringing in 30%, or your top three customers making up 60–70% combined. You might think, “That’s just how our industry works” or “They’re reliable, I’m not worried.” But what if they cut back, switch suppliers, change leadership, or ask you to drop your prices by 20%? Suddenly, a business that felt solid is on edge.
This happens more often than owners admit. A metal fabricator doing contract work for a major construction equipment brand got 65% of its annual revenue from them. Then that customer merged with another firm and started sourcing in-house. In three months, the fabricator went from 3 shifts per day to 1. That owner wasn’t running a business—he was essentially running a department for one customer.
This kind of over-reliance tends to sneak up gradually. One customer grows faster than the rest. They always pay on time. Your team prioritizes their orders. And before you know it, your top three customers are paying your rent, your payroll, and your profit. Until they don’t.
The less obvious ways customer concentration drags your business down
It’s not just about the fear of losing a customer. The real cost shows up in ways that are easier to miss—until they hurt. When one or two customers make up most of your revenue, they get leverage. They can push harder on pricing, demand tighter timelines, delay payment terms, or ask for freebies. You find yourself saying yes to stay on their good side, not because it’s smart.
Customer concentration also traps your capacity. When your best machines or longest-serving employees are tied up with one client’s work, it becomes harder to take on better opportunities. You get stuck in the volume-over-margin cycle—working harder, not smarter. And if you’re thinking of selling the business one day? Buyers will spot the risk in a second. Even if you’re profitable, they’ll offer less or walk away.
A plastics shop that specialized in short-run jobs saw this first-hand. Their largest customer, a medical device company, made up 45% of revenue. When that customer asked for a 12% price cut “or we’ll have to look elsewhere,” the owner had no real choice. He agreed. Over the next six months, they lost $130K in profit—even though top-line sales stayed the same.
How to spot if you’re overly concentrated—before it becomes a problem
You don’t need a consultant to tell you if you’re exposed. Here are some signs:
- If one customer accounts for more than 20–25% of your total revenue, you’re concentrated.
- If your top 3 customers make up over 50%, you’re very concentrated.
- If one lost customer would force you to lay off staff or take on debt, you’re already at risk.
- If you haven’t added a new customer in over six months, your sales pipeline is too quiet.
Even if everything feels fine now, the risk is real. And it tends to show up fast, without warning. You don’t want to be caught trying to replace half your revenue with the clock ticking.
How to reduce concentration risk without hurting revenue
Start by making customer diversity a clear goal. Don’t overthink it—just decide that within the next 12–18 months, no single customer should make up more than 20% of your sales. Then build toward it gradually.
You don’t need dozens of tiny customers. Just aim to bring in two or three new midsize accounts to balance things out. One CNC shop we worked with shifted their sales focus to local aerospace startups. By offering faster turnaround and smaller batch sizes, they landed four new clients over 9 months—and cut their top customer’s share of revenue from 52% to 33% without losing the account.
Think about adding a new industry segment. If most of your clients are in one vertical—say, automotive—start exploring adjacent sectors like heavy machinery, electronics, or even agriculture. This not only spreads your risk but also helps buffer you during industry-specific downturns.
Also look at your pricing and service mix. Sometimes you don’t need new customers—you just need existing ones to buy more premium services. Offer rush production, design assistance, or inventory programs that drive higher margin. That way, even if volume stays the same, you’re less dependent on any one customer to make your numbers.
And don’t forget: track this monthly. Just like you track sales or profit, measure how much of your revenue comes from your top one, three, and five customers. Set red flags. If one customer creeps above 25%, it’s time to dial up business development and rebalance.
What customer diversity unlocks that you don’t see today
Fixing customer concentration isn’t just about protection—it’s about power. With more balance, you can raise prices more confidently. You can negotiate better terms. You can say no to unreasonable requests without fear. Your production becomes more flexible. Your team becomes less reactive. And your whole business becomes more valuable—especially to banks, investors, and potential buyers.
A manufacturer that once had 70% of its business with two buyers took two years to rebalance. Today, no single customer is above 18%. Their profit margins are higher, their stress levels are lower, and when one customer paused orders last quarter, they didn’t miss a beat.
That’s what you want. Not just more customers—but a business that’s built to survive and grow, no matter what.
Creative ways to build a more balanced, more resilient customer base
If your top accounts are too dominant, you don’t just need more customers—you need smarter ones. Start by thinking smaller, not bigger. The fastest way to diversify is by landing a few mid-tier clients who fly under the radar of your biggest competitors. These smaller players often value flexibility, speed, and hands-on support far more than price. That’s where many manufacturing businesses can shine.
Let’s say you’re a sheet metal shop mostly working with Tier 1 auto suppliers. You could begin targeting specialized vehicle upfitters, local robotics manufacturers, or food processing equipment makers—segments that may not give you $500K orders but could add $50K–$150K in steady annual work. Enough of those, and you’ve diluted your risk meaningfully while actually improving gross margins.
Another practical move? Partner up. Many manufacturers overlook how powerful strategic partnerships can be. Team up with a non-competing shop that serves a different market—one you’re trying to break into. You can refer work to each other, quote joint projects, or even share client introductions. One powder coating company we know gained six new clients just by collaborating with a CNC machine shop across the street that was constantly being asked, “Do you do finishing too?”
Also consider revisiting former clients who stopped ordering. Reach out, find out why they left, and see if there’s an opportunity to win them back under better terms. Even if only one or two return, that’s one or two fewer eggs in the same basket.
And if your current customer mix is holding you back from quoting new work because your capacity is tied up, rethink your scheduling process. Can you batch orders more efficiently to free up space? Can you add a part-time shift, or temporarily outsource less strategic jobs? Creating even a little more operational flexibility gives your sales team room to grow without overpromising.
What’s most important here isn’t just how many clients you have—it’s the structure of your revenue. You want balance, options, and room to maneuver. That’s how you protect the company you’ve built and set yourself up for stronger, more profitable growth down the road.
3 Takeaways You Can Act On This Week
1. Find out your customer concentration percentage right now. Pull your top 5 customers by revenue. Add up the percentage. If your top 3 are over 50%, or one is over 25%, you’ve got work to do.
2. Set a 12-month customer mix goal. Make it your target that no one customer accounts for more than 20% of sales. Assign a sales rep—or yourself—to go after 2–3 new midsize clients starting now.
3. Create a monthly “customer risk report.” Track your top customer’s revenue share like a KPI. If one starts creeping too high, pause new projects until you’ve built a buffer.
Want help figuring out how to fix your customer concentration without hurting your revenue? Let’s have that conversation. Better to fix it now—before it becomes your biggest problem later.
Top 5 FAQs on Customer Concentration for Manufacturing Businesses
1. How do I know if my customer concentration is too high?
If one customer accounts for more than 20–25% of your revenue—or your top three make up over 50%—you’re exposed. The risk isn’t just about loss; it’s also about leverage and margin pressure.
2. Is it really a problem if my biggest customer is loyal and pays well?
It’s not about trust or payment history—it’s about dependency. Even loyal customers can leave due to things beyond your control, like mergers, leadership changes, or sourcing shifts.
3. What’s the fastest way to lower my customer concentration risk?
Target 2–3 new midsize customers in industries you’re not currently serving. These may be easier to win and can balance your mix without disrupting existing relationships.
4. Will diversifying slow my growth?
Not if you do it intentionally. In fact, customer diversity often boosts profitability because you gain better pricing power and reduce the stress of “all eggs in one basket” thinking.
5. How does this impact the sale or valuation of my business?
Buyers and banks look closely at customer concentration. High concentration almost always lowers your valuation—or kills the deal—because it signals risk. A more balanced customer base makes your business far more attractive.
Protect your margins. Protect your growth. Protect your business.
Your biggest customers may feel like your strongest asset—but if they’re too big a piece of your pie, they also represent your biggest risk. You don’t need to lose them. You just need to give your business breathing room. Start today by rebalancing your customer mix and building for resilience. If you want help reviewing your current revenue spread—or getting pointed in the right direction—let’s talk. It’s a simple step that could save your business a world of pain down the road.