Customer Concentration in FM: When One Contract Caps the Price

The MeasureHow a buyer measures concentration, which is not how owners do

Start with revenue: the largest client as a percentage of turnover, then the top three, then the top five. Most owners know the first figure approximately and are surprised by the second. A book where the top three clients are two thirds of revenue is a concentrated book however many small accounts sit beneath them.

Then repeat the exercise on gross profit, which is the version that matters and the version owners almost never run. A large contract won on thin margin to keep the operatives busy might be thirty per cent of revenue and twelve per cent of gross profit, and that is a materially better position than the revenue figure suggests. It can also run the other way, where the largest client is both the biggest and the most profitable, and losing it would take most of the earnings with it.

Then look past the client to the other two concentrations. Site concentration, where several contracts sit on one estate or one campus, means one decision by one landlord affects all of them. Sector concentration, where most of the book is in retail, or in higher education, or in one part of the public sector, means a budget cycle in that sector arrives everywhere at once. Buyers price all three, and an owner presenting only the client figure will be asked about the other two.

The ReasonWhy facilities management collects concentration honestly

It is a structural feature of the sector rather than a management failure. FM contracts are large relative to the businesses delivering them, so a single multi-site win can double a company's turnover and leave it dependent on one client for years. Nobody turns that contract down, and nobody should.

Bundling compounds it, quietly. Adding waste, then grounds, then reactive maintenance to an existing cleaning client is the sensible commercial move and it is also four service lines behind one relationship. Measured by contract the book looks diversified; measured by client it has become more concentrated with each success.

Public sector frameworks do something similar. Winning a place on a framework can produce several contracts that look independent and are in fact awarded through one route, by one buying organisation, under one set of rules. If that framework is not renewed, or your place on it is not, the loss arrives as a group rather than singly.

The WorkWhat twelve months can and cannot change

The fastest lever is term rather than proportion. You cannot shrink a large client quickly without shrinking the business, but you can often extend that contract before going to market. A dominant client with four years left on a renewed agreement is a different proposition from a dominant client with eight months and a rolling break, even though the concentration percentage is identical.

The second lever is deliberate growth at the bottom. Winning five modest contracts in new client sectors over a year moves the top-five percentage, adds sector diversification and demonstrates that the business can still win, which is a separate point a buyer is quietly testing. It is slower than it sounds and it is the only durable fix.

The third is structural, and it belongs in the negotiation rather than the preparation. Where concentration cannot be reduced in the time available, it is normally handled through deferred consideration tied to that client's retention, which is a reasonable answer provided the target is one you can influence after completion. What is not reasonable is an earn-out on a contract whose renewal decision sits entirely with a buyer you no longer control.

What twelve months will not do is make the issue disappear before diligence. A buyer will find it, so the sound approach is to present it first, with the gross profit figure, the term remaining, the renewal history and the specific steps taken. Concentration disclosed with evidence is a risk being managed. Concentration discovered in week six of diligence is a reason to re-cut the offer.

A dominant client with four years left on a renewed agreement is a different proposition from a dominant client with eight months and a rolling break, even though the concentration percentage is identical.