Revenue Concentration Index: Quantifying Customer Dependency Risk

Revenue Concentration Index: Quantifying Customer Dependency Risk

Not all customers contribute equally to your revenue — but how unequal is too unequal?

The Revenue Concentration Index (RCI) provides a mathematical view of how distributed (or concentrated) your revenue truly is.
Unlike the Revenue Concentration Ratio, which focuses on the top few accounts, RCI captures the entire curve of your revenue base — from whales to minnows.

High RCI = a risky, top-heavy business.
Low RCI = diversified, stable, and scalable revenue.

At a Glance

Definition:
RCI = Σ (Customer Revenue Share²)

Interpretation:

• RCI → 1: Completely concentrated (one customer = all revenue)
• RCI → 0: Perfectly distributed (each customer contributes equally)

Ideal Range:

• Healthy: <0.20
• Concentrated: 0.20–0.35
• High Risk: >0.35

Recommended Playbook: Financial Planning & Budgeting

1. Why RCI matters

Revenue diversification is more than a risk metric — it’s a signal of maturity and scalability.

High RCI means:

• Your revenue depends on too few customers.
• Forecasts become volatile and unpredictable.
• Valuation multiples are discounted for fragility.

Low RCI means:

• Your business has a broad, repeatable customer base.
• Churn risk is spread and manageable.
• Each customer segment contributes meaningfully to growth.

In short, RCI tells you whether you’re scaling a portfolio or a pipeline.

2. How to calculate

RCI = Σ (Customer_i Revenue Share)²

For example, suppose you have 4 customers:

RCI = 0.1600 + 0.0900 + 0.0400 + 0.0100 = 0.30

RCI = 0.30 → Moderately concentrated, with 70% of revenue from two customers.

Lower = better.

3. Benchmarks by stage and model

Enterprise-heavy SaaS businesses often start with high RCI — but should aim to reduce it before scaling.

4. Comparing RCI and Concentration Ratio

Use both together:

• Ratio → quick snapshot
• Index → full structural insight

5. How to interpret your RCI curve

Plot cumulative revenue share by customer rank (Pareto curve).

If your top 20% of customers contribute:

• <60% of revenue → healthy distribution
• >80% → concerning concentration
• >90% → critical dependency

RCI aligns mathematically with this curve — the steeper it is, the riskier your revenue.

6. Why investors track RCI

Revenue concentration is one of the first due diligence questions in any acquisition or Series B+ raise.
High RCI discounts valuation because it amplifies binary risk — one lost customer can break your model.

Low RCI companies:

• Command higher revenue multiples
• Demonstrate repeatable go-to-market motion
• Are less volatile under economic pressure

Diversification = durability = valuation leverage.

7. How to reduce RCI

A. Segment and expand your ICP

Move beyond your dominant segment to diversify revenue mix.

B. Tier your pricing

Encourage broader mid-tier participation through pricing and packaging.

C. Grow breadth before depth

Prioritise customer count before upsell if concentration risk is high.

D. Build multiple acquisition channels

Don’t rely on one GTM motion or partner.

E. Measure quarterly

Track RCI alongside retention and NRR to watch concentration evolve.

8. Example comparison: two SaaS companies

Both may have $10M ARR — but Company B is twice as resilient and valued more favourably.

9. Relationship to other metrics

RCI is a risk multiplier — the higher it is, the less predictable your growth.

10. Founder takeaways

• Aim for RCI <0.25 by Series B.
• Track both Ratio and Index to quantify concentration risk.
• Use it in board decks to show maturity and diversification progress.
• Remember: revenue concentration isn’t just a sales problem — it’s a strategy signal.

Healthy growth isn’t about more revenue — it’s about more balanced revenue.

Explore: Financial Planning & Budgeting
Compare: Revenue Concentration Ratio
Assess: Strategic Planning Diagnostic

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