A founder who I work with recently told me that they’d just lost a big client who represented about 15% of revenue. It was a contract that they expected to renew but didn’t, so it was a bit of a shock, quite short notice, but they could ride out the financial loss. Yes, it would hurt, but they’d be fine.
The real problem? They have another client who, as a result of this loss, now represents just over 20% of revenue and whilst they have a bit of time before the contract expires, things aren’t going overly well.
If they also lose that one, things may be a lot trickier to ride out without losing headcount.
I’ve had my fair share of similar situations in the past when running my own agency. In fact, losing one huge client in 2023 led to us having to make about a third of the agency redundant. But that’s a story and lessons for another day…
If you’re reading this thinking ‘that sounds familiar,’ you’re not alone. I’d estimate that about 60-70% of the agencies have 2-3 clients that represent 30-40% of their total revenue. It’s incredibly common. And it’s one of the biggest risks posed to agencies.
The thing is, most agencies are more than aware of this risk, but aren’t doing as much as they could be to actively manage it.
If you’re one of them, the following is for you.
Let’s start by talking about how this happens (and why it’s not your fault).
The natural path to concentration of revenue
There is a common journey that many agencies follow that can lead them to being overexposed by one big client. The irony is, this happens most to agencies who are actually very, very good at what they do!
They start by winning a big client, but the budget isn’t more than 10% of your revenue, so it doesn’t set off any alarm bells. Then over time, they turn into a very happy client and the retainer starts to get a bit bigger – an upsell here, a cross-sell there. Suddenly, they make up 15-20% of revenue.
Now, this is actually a good problem to have, at least initially. It means that you’re doing great work, the team is effective and the client trusts you. This is better than the opposite type of problem!
However, somewhere between “good problem to have” and “serious risk”, there’s a line that most agency founders (I was one of them) don’t notice until they’ve crossed it. Once they’ve crossed it, the risk feels very real and anxiety and pressure builds.
The point being – when a single client conversation can determine whether you make payroll in three months, that’s not a strategy or account management issue anymore, it’s existential risk.
The real cost of revenue concentration (beyond the obvious)
Yes, of course, losing huge chunks of revenue and the potential for this to mean redundancies are obvious problems. But there can be knock-on effects elsewhere as well.
The negotiation imbalance
When a client knows that they are your biggest account and make up a large chunk of revenue, renewal conversations (especially if you’re dealing with procurement who have little existing relationship with you) can become difficult. They have the leverage and price increases, even minor ones, become nearly impossible to close.
The mental load
It plays on your mind because you can’t help but play out the negative scenarios and what happens if you don’t renew the client. It’s harder to switch off, harder to enjoy your weekends and harder to be present with your family and friends. This can also affect your work in other areas of the business too.
Hasty decisions elsewhere
Having this one client renewal hanging over your head can affect your decision making in other areas. It may make you more likely to take on a lower value, bad fit client who you’d usually say no to, just to get some more revenue in. It may make you seem more desperate when going into renewal conversations with other clients. Whatever it is, it’ll play on your mind and factor into more decisions than you realise.
I personally still remember waiting for emails from a huge client and hoping to hear good news about their renewal, then going into a slight panic when they went quiet for a few days. It’s not a healthy way to run a business, but I didn’t know what else to do.
Two practical ways to actually mitigate the risk
You have two big levers that you can pull when it comes to mitigating the risk of one or two clients making up a big chunk of your revenue. I’ll be honest, these aren’t rocket science and shouldn’t be new concepts to you – the key is to be very deliberate with your efforts to actually do them and not become passive.
Lever 1: Reduce concentration by growing the base
The numbers are simple enough – if your biggest client is 20% of revenue at £300k turnover, they’re only 10% at £600k. Yes, okay, this is a huge jump in revenue and is scary enough a target anyway, but no one said that mitigation was easy.
Try to focus new business on filling the bottom and middle of your client portfolio, not just chasing another whale to try and compensate for the one(s) you already have. Yes, they may not be as exciting, but they will rebalance your risk and help you sleep a little better.
When it comes to upsells, start with the low to mid level clients who seem to have the most potential for expansion. It’s tempting to start with the bigger ones and yes, you should also pursue these if there is potential, but don’t ignore the others.
Lever 2: Actively manage retention and renewal visibility
Note the word actively. It still shocks me how many agencies don’t do this.
A few practical things that you should be doing:
- Make contract renewals a standing SMT agenda item (I recently suggested to a client that they do this with their new SMT and it’s working well to bring the SMT into this ongoing conversation).
- Don’t wait until 30 days before contract expiry to start the renewal conversation. You should be starting these conversations and understanding where the client’s head is at 90-120 days out.
- Create a simple red, amber, green (RAG) tracker to help get a view of all clients in terms of happiness, renewal confidence, work delivered etc. Then actively work on the ones that are red or amber.
I recently had a client who had a renewal that dragged on for over a month, despite getting verbal confirmation on the renewal. This caused them a lot of unnecessary stress, especially given that this was a large account. This stress could have been avoided with some more effective, earlier conversations with the client and understanding the legal process.
What good looks like
Let’s finish with where you should be trying to get to as an agency to manage this risk better and hopefully avoid big issues with client revenue concentration.
Where possible, try to stick to the following:
- Ideally, no single client should represent more than 10-12% of revenue.
- Your top three clients should be less than 25% of revenue combined.
Yes, this can take years to achieve if you’re already concentrated. After all, you can’t sack good clients and you shouldn’t turn down upsells!
So the path to growth is in other areas – you don’t fix this by shrinking big clients (unless they are wildly unprofitable). You fix it by growing everything else around them.
Realistically, if you’re at 35% concentration in your top two clients today, getting to 25% probably takes 12-18 months of focused new business effort. Getting to 20% might take 3 years. That’s fine, the point is to start moving in the right direction and not bury your head in the sand.
The founder I mentioned at the start will be fine. They’ll replace that 15% over the next few months, and they’ll probably be more resilient for it. But they’ll also tell you – and they have told me – that they wish they’d seen it coming and built more buffers before it happened.
The truth is, you can’t eliminate this risk entirely. Clients leave, contracts end, budgets get cut. But you can choose whether that’s an inconvenience or a crisis. The difference is whether you’re managing the risk actively or just hoping it doesn’t bite you.
If you’re sitting on 30-40% revenue concentration right now, don’t beat yourself up about it. It’s common, it’s understandable, and it’s fixable. Just don’t ignore it. Run the numbers, look at the risks and start building the buffer you’ll be grateful for later.