The Goldilocks Principle: Finding the Right Balance in Your Agency’s Customer Concentration

While it’s tempting to take on any client that comes your way, not all clients are good clients. Some clients may be too big, demanding too much of your time and resources, while others may be too small, providing insufficient income to justify the effort. Finding the right balance is key to ensuring your agency’s long-term success and profitability.

What is Customer Concentration?

Customer concentration refers to the proportion of your agency’s total income that comes from a single client or a small group of clients. As a general rule, it’s best to avoid having any one client account for more than 25% of your gross income. When a single client dominates your income stream, it can lead to what’s known as the “Golden Goose Syndrome” — an over-reliance on one client that leaves your agency vulnerable to significant financial risk if that client decides to leave or reduce their business with you. Diversifying your client base and ensuring that no single client holds too much power over your agency’s financial health is essential for long-term stability and growth.

The formula to calculate customer concentration for each client would look like this:

• (Gross income from client / Agency Gross Income).
• Here’s an example. Say one of your clients was responsible for $400K of your $1M business; in that case, the customer concentration for that…