When the Top Customer Leaves: Revenue Concentration Nightmare Scenario
You bought a SaaS business where one customer was 35% of revenue. They churned 4 months post-close. Here's the financial aftermath and how due diligence could have flagged it.
The scenario
A SaaS business selling for $750K has $250K ARR, growing 20% YoY. Looks attractive at 3× ARR. But one enterprise customer — a Fortune 500 company — represents 35% of MRR. The seller dismisses this: "They've been with us for 4 years, they're not going anywhere." Four months after you close, that customer's new VP of Procurement runs an audit, decides to bring the function in-house, and cancels. Overnight, your ARR drops from $250K to $162.5K. The business you bought for $750K is now worth ~$487K at the same multiple. You've lost $263K in value in 4 months.
The domino effect
Revenue concentration creates a cascade: (1) the direct revenue loss; (2) loss of the marquee logo that attracted other customers; (3) reduced team morale and potential talent departure; (4) the business now looks less attractive if you try to resell, because any buyer will see the revenue cliff in the historical data. The total economic damage often exceeds 2× the lost MRR.
How ChurnLens flags concentration risk
ChurnLens's Revenue Concentration report calculates the Herfindahl-Hirschman Index (HHI) for the customer base and flags any customer above 15% of MRR. The report also models three scenarios: the top customer churns (best case for a single loss), top 2 churn (moderate), and top 3 churn within 12 months (worst case). Any scenario that drops MRR below the acquisition debt-service threshold is flagged as a deal-breaker unless the purchase price is adjusted.