Concentration Risk Analysis

Revenue concentration is the risk that aggregated metrics conceal best. If your top 5 customers represent 40% of ARR, you do not have a SaaS business with 500 customers. You have 5 enterprise accounts with a long tail. The loss of any one creates a structural revenue gap that would take months to replace. Concentration risk analysis quantifies this exposure and forces diversification planning before a loss event occurs.

1. Calculate the Concentration Index Top 1 customer as a percentage of ARR (dangerous above 15%). Top 5 as a percentage (dangerous above 35%). Top 10 as a percentage (dangerous above 50%). Calculate the ARR impact of losing each top-10 account and the replacement timeline given current pipeline velocity. If losing your #1 account would take 6 months of net new ARR to replace, the concentration risk is existential.
2. Segment Concentration Revenue concentration is not just about individual accounts — it is about segments, industries, and geographies. If 60% of your ARR comes from financial services, a regulatory change or industry downturn creates systemic risk. Diversification should target segment concentration as aggressively as account concentration.
3. Cohort Concentration Check whether your retention rate is being carried by a small number of long-tenured accounts. If removing the top 20% of accounts by tenure drops your gross retention from 92% to 79%, your "great retention" is a function of legacy relationships, not product-market fit. New customers are not retaining — the old ones are masking it.