Compass concept
Concentration risk
How dependent the company is on a single customer, product, region, or supplier.
Definition
Concentration risk measures reliance on a narrow base, one large customer, a single product line, one geography, or a key supplier. High concentration means a single loss can hit the whole business hard.
Why it matters
Concentration can turn a manageable setback into an existential one. Diversified sources of revenue and supply make a business steadier and safer to own.
Watch-outs
Concentration isn't always bad if the relationship is durable, but understand what would happen if the largest customer or product went away.
Educational information only, not investment advice. Turtleway helps you understand what a metric or concept means; it does not tell you what to buy or sell.