Three customers together generated 49.5% of Fabrinet’s revenue in the quarter ended March 27, 2026. The contract manufacturer warned that dependence on a small group of buyers increases its exposure to reduced orders, unpaid bills and stronger customer bargaining power. The same questions belong in the sales planning of much smaller businesses.
Winning a large account can make growth easier to finance and production easier to plan. It may also leave the supplier with employees, equipment or inventory that are difficult to redeploy if the relationship ends.
The account’s size is only one part of the assessment. Managers need to know how much contribution it generates, how promptly it pays and how quickly the business could replace the work.
What customer concentration means
Customer concentration describes how much of a company’s business comes from a limited number of customers. A starting measure is the revenue from the largest customer divided by total revenue over the same period. The combined share of the largest few accounts gives another view.
Separate subsidiaries of the same corporate group may depend on the same budget or purchasing decision. Counting them as unrelated buyers can make the customer base appear more diverse than its economic exposure warrants.
There is no universal percentage below which an account becomes safe. A company with short contracts and customer-specific equipment faces different exposure from one selling reusable stock and collecting cash before delivery.
Large accounts also have advantages. Repeat orders may reduce the effort required to win each sale. A dependable buyer can make scheduling more predictable and give a supplier enough volume to justify equipment or training.
Those benefits help explain why concentration exists. The task is to identify what the business has committed to the relationship and whether it can absorb a reduction in orders.
Look beyond the share of revenue
Revenue can give a misleading impression of the account’s financial contribution. Discounts, dedicated support, returns, delivery requirements and slow payment may make a large customer expensive to serve.
Calculate the account’s revenue less the costs that would be avoided if the work disappeared. Then identify expenses that would remain, such as premises, salaries or equipment finance. Losing the revenue and being able to remove all its associated costs are different events.
Outstanding invoices need their own concentration measure. A customer can represent a modest share of annual sales but a much larger share of the money still waiting to be collected. A payment delay may affect payroll and supplier payments before it appears as a lost sale.
Fabrinet’s March 2026 quarterly filing describes these exposures directly. It warns that customer concentration also concentrates receivables and may leave inventory costs unrecoverable. The company says its master supply agreements do not guarantee a level of business; work is awarded project by project.
That is a company-specific disclosure, not evidence that every concentrated supplier is in difficulty. It shows why a long-standing relationship or an umbrella agreement should not automatically be treated as guaranteed future orders.
In our earlier coverage of Fabrinet, growing inventory and receivables absorbed cash during expansion. Customer exposure should be reviewed alongside the investment required to fulfill the work.
Test what happens if the account shrinks
A stress test is a calculation of how the business would operate under an adverse scenario. Start with a reduction or delay in orders, then examine an outright loss of the account. State the assumptions clearly; the scenarios are not predictions.
Estimate the contribution lost, the cash still owed and the cost of inventory already committed. List which expenses can be reduced immediately and which require time, negotiation or additional spending to remove.
Next, assess replacement demand. Finding a buyer, agreeing terms and receiving payment can take longer than signing an initial contract. The economic dependence is greater when the supplier has few alternative buyers or when several customers respond to the same industry downturn.
Sales and operations should also check whether dedicated equipment can handle other work. Customer-specific stock, software or certifications may narrow the options. Contract wording, actual order commitments and payment history belong in the review together.
The result should identify a response that can be carried out: reducing an inventory commitment, agreeing clearer order schedules, seeking deposits where commercially acceptable or developing another source of demand. Each option has costs and may affect the customer relationship.
Diversify without overstretching the business
Adding customers can reduce dependence, but entering several unrelated markets at once may require skills, equipment and sales spending the company cannot fund.
A 2025 Business Development Bank of Canada survey of 545 business owners and decision-makers recorded concerns about diversification. Half mentioned overextending financial or human resources, while 41% identified greater operating complexity and 40% uncertain returns. These were reported concerns, not measured failure rates.
A staged approach can begin with buyers needing similar products, service standards or production capabilities. Marketing can then test whether the company can acquire those accounts at an acceptable cost before operations commits to substantial expansion.
Keep the large customer’s relationship in good condition while building alternatives. Diversification does not require turning away commercially attractive work. It requires enough visibility to decide how much additional exposure the business can accept.
Review the account when its terms change, its unpaid balance grows or it requests investment dedicated to its orders. An apparently stable revenue percentage can conceal a larger commitment of cash and capacity than the business carried the year before.
