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  • Writer's pictureEric Williams

High concentration of revenue by product / service

One of the risk factors that business buyers look at is the concentration of revenue coming from its products or services. For example, all other things being equal, if a business has 20 different revenue-generating products or services and each contributes roughly 5% to overall revenue, the business will be perceived to have less risk than a business that has only five revenue-generating products or services with the top product/service representing 40% of revenue. In the latter, if market demand changes for the top product or service or there are changes that negatively impact profitability of the top product, it will have a much greater financial impact on the business than if the same thing happens to the business with the top selling product representing 5% of sales.

While diversification of revenue by product or service usually isn't as important as having a low concentration of revenue by customer, to the extent revenue can be diversified across more products or services, it may help lower perceptions of risk which will encourage buyers to pay a higher price.


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