How to review client concentration

Why concentration deserves a regular review

Client concentration review helps owners see that exposure clearly. It is useful when setting annual plans, deciding whether to pursue new markets, reviewing staffing commitments, or preparing for a sale, recapitalization or growth capital discussion. It can also prompt a practical conversation: what would happen if a key client delayed awards, changed procurement plans or moved work to another firm?

The analysis is only as useful as its definitions and data. A percentage by itself does not tell the full story. Owners need to know which entities are grouped together, whether the view covers earned revenue or future work, how much exposure comes through other firms, and how dependent the relationship is on a single contact or project team.

The goal is to make the firm’s exposure visible enough to act on. That does not mean every concentrated relationship is a problem, or that every firm should pursue the same client mix. It means leadership can distinguish deliberate focus from accidental dependence and understand the tradeoffs behind each.

Start with consistent client definitions

Before comparing clients, decide what “client” means in the analysis. The word can refer to the entity named in a contract, the party that pays invoices, the owner of the project, a public agency, or a parent company with many subsidiaries. Different definitions can produce very different concentration figures.

A useful review usually keeps several fields available:

Contracting party: The legal entity that signed the agreement with your firm.
Paying party: The organization that receives and pays invoices, if different.
Project owner or end client: The party whose project is being designed or delivered.
Parent or affiliated group: The organization that controls or coordinates related entities.
Prime or intermediary: A consultant, developer, construction manager or other firm that hires your firm as a subconsultant.

Keep the underlying entities in the source data. Then create a documented grouping rule for management reporting. For example, a county department and the county’s public works division might be grouped under the county for a parent-level view, while still being shown separately in a department-level view. A private developer’s project-specific subsidiaries might be grouped under its parent company when the same ownership and decision-making structure applies.

Avoid grouping organizations simply because they share a name, location or industry. Two agencies in different jurisdictions may procure work independently. Conversely, separate subsidiaries may rely on one parent’s centralized procurement team. The grouping should reflect who can realistically award, redirect or cancel work.

Use the same rule for every period you compare. If the firm changes its grouping method, restate prior periods where practical or clearly label the break. Otherwise, a change in reported concentration could come from accounting treatment rather than a change in the business.

Document exceptions. Joint ventures, teaming arrangements, pass-through work and multi-agency programs often need a specific treatment. Include a short note describing how revenue and backlog are assigned. A simple data dictionary, kept with the report, prevents the same debate from recurring every quarter.

Review revenue and backlog as separate views

Revenue shows work already performed and recognized under the firm’s accounting method. It can help answer: which clients have supported the business over a recent period? Use a consistent time window, such as the fiscal year and a trailing period, and compare like with like. Seasonal workloads, project milestones and large one-time assignments can make a single year misleading.

Backlog shows contracted work that remains to be performed, subject to the firm’s definition and accounting controls. It helps answer a different question: where is future contracted work currently concentrated? Backlog is not the same as guaranteed revenue. Scope changes, client approvals, funding, permitting, schedule shifts and termination rights can all affect when or whether work proceeds.

Show both views side by side. A client that represented a large share of past revenue may have little remaining backlog. Another may have a modest historical revenue share but a large recently awarded program. The first could represent a historical dependence; the second may signal future delivery exposure.

For each view, calculate the client’s share of the total and rank clients from largest to smallest. Show the top clients individually, then group the remainder as “other clients.” The total should reconcile to the finance or project controls records. Be clear about whether the denominator is total firm revenue, net service revenue, or another measure. If pass-through expenses are large, gross revenue can make a client appear more important than the engineering services actually delivered.

Backlog also benefits from a few subdivisions:

Funded or authorized work: Work covered by current authorization, task order or other approval.
Contracted but not yet authorized: Work under a broader agreement that still needs a task order or notice to proceed.
Pursuit or pipeline: Potential work that has not been awarded. Keep it separate from backlog.

These categories may be named differently in your firm’s systems. The important point is to avoid presenting prospective work as though it were contracted. Make the cutoff date visible and use a consistent backlog policy.

A basic concentration ratio is the value attributable to a client or client group divided by the relevant total. A top-client share and a combined top-client share can be easy to interpret. A more detailed concentration index may help compare portfolios, but no formula substitutes for examining the underlying relationships and contract terms.

A simple hypothetical example

Suppose a firm records $10 million of annual net service revenue. One client group accounts for $2 million, so its share is 20 percent. The firm has $12 million of backlog, of which $3 million belongs to that group, or 25 percent. These figures tell leadership that the client’s future work is more concentrated than its recent revenue. They do not establish whether the exposure is safe or unsafe. The firm still needs to review duration and authorization. It should examine margins and project timing, then consider staffing and relationship coverage.

Trace direct and indirect relationships

A client concentration report based only on the firm’s contracts can miss the project owner behind subconsultant work. It can also overstate diversity when several contract holders depend on one end client.

Track direct and indirect work separately. Direct work is awarded to your firm by the client or owner. Indirect work comes through a prime consultant, joint venture partner, construction manager or other intermediary. For each project, record the contracting party and, where known, the ultimate owner or end client.

Then create two useful views:

Contracting-party view: Who has a direct contractual and payment relationship with your firm?
End-client view: Which owners or agencies ultimately generate the work, including work received through primes?

A firm may have many prime contractors on its client list but still depend on one transportation agency’s capital program. The reverse can also happen: a single prime contractor may bring work from several unrelated owners, so the firm’s exposure to that prime differs from its exposure to any one end client.

Do not assume that indirect work is interchangeable or secure. A prime can change subconsultants, and the owner can change the prime or delivery structure. At the same time, avoid assigning all indirect revenue to an end client when the project’s ownership or funding is unclear. Use a “not confirmed” category and improve the data over time instead of implying precision.

Joint ventures need particular care. The firm may record only its share of work, while the total project value is much larger. For a firm-level concentration review, report the firm’s contracted or earned share. You may add a separate project exposure view when the wider project affects staffing, bonding capacity or reputation. Label the two measures so no one mistakes project value for firm revenue.

Consider contract duration and work quality

A concentration percentage gives no indication of how long the work may last. One client could account for a substantial share of backlog through a single task order ending soon. Another may provide a sequence of smaller assignments under a long-running on-call agreement. Both show concentration, but the timing and operational implications differ.

For major clients, review:

Contract term, renewal dates and options.
Remaining authorized amount and the process for issuing additional task orders.
Funding source and whether funds have been appropriated or otherwise approved.
Termination or suspension provisions. Also review scope reduction provisions.
Project schedules, delivery milestones and likely revenue timing.
Whether the work is recurring, programmatic or tied to a one-time project.

An umbrella contract may have a long stated term but little guaranteed work. A signed task order may be more concrete, but still subject to change. The report should separate the framework agreement from authorized assignments and avoid treating the maximum contract ceiling as backlog.

Consider the type of work and its contribution as well as its volume. A large, low-margin assignment that consumes scarce technical capacity may create a different risk from a smaller, profitable program that fits the firm’s capabilities. Review fee backlog, expected labor demand, project phase, collection history and the likelihood that planned work will convert into billable effort. Keep the assumptions visible. Forecast margins and delivery timing are estimates, not facts.

Check relationship coverage

Client dependence can be relational as well as financial. If the relationship depends on one executive, project manager or technical lead, a staff departure or client reorganization could affect work even when the contract remains in place.

For each major relationship, ask who knows the firm and what they know it for. Consider whether the firm has working connections across procurement, project management, technical review and executive leadership. In public procurement, follow applicable ethics and procurement rules. Relationship coverage means reliable professional communication and delivery, not preferential access or influence over selection.

Look for evidence in the work itself:

Has the client used more than one service line or project team?
Does the client recognize the firm’s quality and responsiveness?
Are project records and commitments clear beyond one person’s inbox?
Do several leaders understand the client’s procurement calendar and approval process?
Can the firm deliver if its main relationship owner is unavailable?

A single point of contact is not automatically a weakness. Some clients deliberately centralize communication. The question is whether the firm has enough internal knowledge and succession coverage to maintain service, while respecting the client’s preferred channels.

Record relationship coverage in practical terms. For example, “strong technical access, limited executive coverage” is more useful than an unsupported score. If you choose to use a rating, define it and apply it consistently. Assign an owner to close the most important gaps, such as introducing a second project lead during a normal progress meeting or documenting the client’s approval path.

Ask scenario questions that lead to action

A review becomes useful when it tests how the business would respond to plausible changes. Scenarios should be specific enough to prompt operational decisions, but they should not be mistaken for predictions.

Discuss questions such as:

If the largest client delayed awards for two quarters, which teams would have unassigned capacity?
If a major task order ended early, what work could be paused, redeployed or replaced?
If one prime consultant stopped using the firm, how much end-client work would also be at risk?
If the client’s project manager left, who on your team could maintain continuity?
If a project schedule shifted, could the firm carry payroll and project costs while invoices are pending?
If the client reduced scope, which subcontractor commitments or hiring plans would need review?
If a new client required a rapid mobilization, which skills and leaders would be available?
If public funding or a private development program changed, which backlog items would be affected first?

Use scenarios to connect exposure to decisions. A delayed award might lead to closer monitoring of hiring, a more active pursuit calendar or a conversation about staff deployment. A fragile relationship may call for broader technical coverage. An indirect exposure may call for a closer look at the prime’s own position and the owner’s delivery plan.

Assign an owner and a trigger for any action. “Watch the client” is vague. “Review authorized backlog and staffing at the monthly operations meeting until the next task order is issued” gives the team a concrete check. Keep the response proportionate to the exposure and the firm’s capacity.

State the limits of the analysis

Client concentration is a management lens, not a complete risk model. It cannot predict whether an agency will award work, whether an owner will continue a project, or whether a prime will retain the firm. It also cannot capture every factor affecting the business, including labor availability, project execution, insurance, regulatory changes, disputes, collection timing, competitive procurement and market demand.

The data may be imperfect. Client names can differ across systems, end clients may be unknown for indirect work, and backlog definitions can vary by contract type. Financial reporting periods may not match project delivery cycles. Explain material gaps and avoid decimal-level precision that the underlying records do not support.

Concentration is not inherently bad. A focused firm may know a sector deeply, deliver consistent results and earn repeat assignments. Diversification also has costs. Entering a new market takes time, may require different qualifications and can distract leaders from established clients. The appropriate mix depends on the firm’s strategy and technical strengths. It also depends on the firm’s capacity and tolerance for volatility.

Use the review as one input to ownership decisions. Compare client exposure with cash reserves, staffing commitments, contract terms, pursuit costs and the firm’s ability to redeploy people. If the review supports a major transaction, financing decision, contract interpretation or tax question, seek the relevant qualified professional advice. The concentration report can organize the discussion, but it cannot replace financial, legal, tax or engineering judgment.

For more owner tools and practical reading, visit CivilEngineers.com resources, browse the guides and checklists, or review the industry stats.

General education only, not engineering, legal, tax or investment advice. Licensed PE judgment and local codes govern.