Evaluating Customer Concentration when a Company utilizes Distributors

by a searcher from University of Cincinnati - Carl H. Lindner College of Business

1 year ago

Hi All, 

Could please provide your thoughts on the following? 

The target company utilizes large distributors to sell its products and as a result the top three clients (i.e. these large distributors) account for 55% of the revenue. Now the question is: should we treat these distributors just like any other clients and conclude that the business has high customer concentration or is there a different approach to evaluate customer concentration when distributors are involved? 

Your valuable insights are much appreciated.

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6 comments

professional from University of Southern California - Marshall School of Business

Why consider such a risky situation?

1 year ago | like reply | 1 like

lender from Eastern Illinois University

I would largely agreed with ^Searchfunder member‌. I do believe the risk is slightly less than with a direct customer. However, having 55% concentration between three customers is not terrible. We have certainly seen much worse. Also, depending on the number of items sold by each distributor, the more items they sell the sticky they can be. I hope this helps. If you would like to talk further, please let me know. You can reach me directly at --@----.com Good luck!

1 year ago | like reply | 1 like

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