How to value an online business with concentrated revenue

"Concentrated" usually brings to mind one big customer, but the same problem shows up wherever a single thing carries most of the revenue:

• Customers. A retainer client, a sponsor, a wholesale account or a handful of enterprise subscribers making up most of the income.
• Products. One listing, one app, one course or one article earning most of the money, with the rest of the catalogue along for the ride.
• Suppliers. One manufacturer, one dropshipping partner or one affiliate programme that the whole margin depends on.
• Channels. One search engine, marketplace, app store or ad account delivering most of the buyers. That is its own subject, covered in platform dependence and online business value.

A business can be well spread on one axis and dangerously narrow on another. Check each one separately.

Ask the seller for revenue broken down by customer, by product and by supplier, month by month, for as long as the business has existed — and check the breakdown against the payment processor or bank deposits, as described in how to verify a seller's revenue and profit. Then, for each axis, write down two numbers:

• The largest single share. What fraction of trailing revenue came from the biggest customer, product or supplier.
• The top-few share. What fraction came from the biggest three or five together.

There is no published threshold at which a business becomes "too concentrated", and we do not invent one. What matters is the next question: what happens to the profit if the largest one goes, and how likely is that in the first year you own it?

Costs rarely fall in step with revenue. Hosting, software, tools and your own time stay roughly where they were when a big customer leaves, so the profit drops by a larger fraction than the revenue does.

Run the same sum on the real numbers, with the costs the seller can actually show you. It is the single most useful thing you can do with a concentrated business, because it turns a vague worry into a figure you can price.

Concentration is not automatically a defect. A single large customer on a long written contract can be more dependable than a hundred anonymous buyers. The questions that separate the two:

• Is there a contract, and does it transfer? A written agreement with a term, notice period and price is worth more than a habit. Check whether it can be assigned to a new owner, or whether the customer must consent — take advice on the wording.
• How long has it lasted? A customer who has renewed for several years is a different risk from one who arrived three months before the listing.
• Why do they buy here? Because of the product, or because of the seller? If it is the seller, see valuing an owner-dependent online business.
• Can the supplier be replaced? Ask what it would take to move to a second manufacturer or programme, at what margin, and how long it would take.
• Is the bestseller fading? A product carrying the catalogue may be at the top of its curve. Monthly figures, not a trailing total, will show it — see valuing a declining online business.

There are two honest ways to price a concentrated business. One is to value it on the profit that would remain without the largest relationship, and treat that relationship as an upside you are not paying for. The other is to value the full profit but move the risk of losing it back to the seller through terms:

• Introductions before closing. Meet the main customer or supplier, with the seller, before the money moves. How they react to a change of owner tells you more than any spreadsheet.
• Part of the price deferred. Some of the payment depends on the key relationship continuing through an agreed period after the sale.
• Consent as a condition. Where a contract needs the customer's or supplier's agreement to transfer, make that agreement a condition of closing rather than a task for afterwards.

Deferred and contingent payments change what a headline price means; see what a headline sale price includes and how to make an offer.

Each sale in our database carries the stated annual profit and revenue the listing reported, alongside the sold price. We do not record how that revenue was split across customers, products or suppliers — small listings rarely say, and when they do it is the seller's description, not a figure we can check. So we publish no "concentration discount", and the medians below mix concentrated and well-spread businesses together.

Read them as the price of a typical sale in the category. If the business in front of you depends on one relationship and the typical one in its category does not, that difference is yours to price.

The first two columns cover every non-demo sold deal of that type with a stated profit. The last two are measured over the paid report's window — the most recent 200 priced sales of that type — on the profit basis, so they can rest on a smaller sample. A dash means we hold fewer than five comparables on that basis and publish nothing.