Customer concentration ratio
The share of a company's revenue earned from its largest customers — a high ratio signals dependence on a handful of clients who could walk away or squeeze pricing.
In plain language
Some businesses earn from thousands of small customers. Others earn most of their revenue from just a handful of large ones.
The second kind carries a real risk: if one big client leaves, revenue can fall sharply overnight. Customer concentration ratio measures exactly how exposed a company is to this.
How it works
The workbook flags this directly for the IT services and BPO sector, where companies are "heavily reliant on a handful of customers, which, one hand gives a steady stream of revenue while on the other creates high customer concentration ratio." It even names a specific tracked metric: the number of "million dollar" customers — clients billed more than a million US dollars a year.
The same idea appears in the workbook's SWOT framework, but with an important classification: low customer concentration is listed as a strength, and high customer concentration as a weakness — both internal to the company, not external threats.
A worked example
An Indian IT services company reports annual revenue of Rs 3,200 crore. Its top five clients together contribute Rs 1,760 crore.
Top-5 customer concentration ratio = 1,760 ÷ 3,200 = 55%
Its single largest client alone contributes Rs 640 crore, 20% of total revenue. If that one client decides to move the work in-house or to a competitor, the company loses a fifth of its revenue overnight — exactly the exposure the ratio is designed to flag before it happens.
Why NISM asks about it
Chapter 6.7.3 (IT services/BPO/KPO KPIs) names the metric directly, and Chapter 7.5.1–7.5.2 (SWOT strengths and weaknesses) classifies it. Expect a question testing whether high customer concentration belongs in SWOT as a weakness or a threat — the workbook is explicit that it is a weakness.
Common exam traps
- High customer concentration is a weakness (internal), not a threat (external). The workbook draws this line explicitly elsewhere: a risk is a "threat" only if it comes from outside the company; a risk arising from the company's own client mix is a weakness. This is a direct trap in a SWOT classification question.
Check yourself
1.Which set of metrics does the workbook specifically identify for the IT services / BPO / KPO sector?
- a)ARPU, subscriber churn rate and cost of subscriber acquisition
- b)Average FTEs billed, revenue per FTE, bench strength and attrition, constant currency growth, and customer concentration ratio
- c)Net interest margin, CASA ratio and capital adequacy
- d)Passenger km, price per passenger km and occupancy rate
Show the answer
Answer: (b) Average FTEs billed, revenue per FTE, bench strength and attrition, constant currency growth, and customer concentration ratio
IT services price on head count per project per month — the full-time equivalent or FTE. The constraints are availability of workforce, foreign currency fluctuation (the sector is largely export-oriented), and customer concentration where a handful of clients supply much of the revenue.
So the metrics follow the unit and the constraints: average number of FTEs billed, average revenue per FTE, bench strength (spare capacity) and attrition rates, constant currency growth rates, and customer concentration ratio together with the number of million-dollar customers — those billed more than 1 million USD per annum.
Option A is telecom, option C is banks and NBFCs, and option D is airlines and transport. Each set is built from a different unit of pricing, which is the fastest way to place any KPI list in the right sector.
Where this is taught
Free preparation for NISM Series XVRelated terms
- ARPUAverage revenue earned per subscriber over a period — the key top-line KPI analysts use to track telecom and other subscription businesses.
- Attractive industryAn industry structure, under Porter's Five Forces, with low competition, high entry barriers and weak buyer or supplier power — letting its companies earn strong, durable margins.
- Business modelHow a company actually makes money — what it sells, to whom, and how it delivers and prices it — which the workbook treats as the real basis of competition between companies.
- Business life cycleThe stages an industry passes through from emergence to decline — pioneering, growth, maturity, decline, and rarely reinvention — driven by the secular trends around it.