Customer and contract due diligence assesses the quality and sustainability of the revenue the seller presented. Revenue numbers tell you what happened in the past; customer and contract analysis tells you what will happen in the future under your ownership.
Customer Concentration Analysis
Request a customer revenue report showing each customer's contribution to total revenue for the most recent 12 months. Identify the top 10 customers by revenue. Calculate what percentage of total revenue each represents. Any customer representing more than 15–20% of revenue represents meaningful concentration risk. For those customers, understand: Is there a contract in place? How long have they been a customer? What is their relationship with the current owner vs. the business itself?
Contract Review and Assignment
For each material customer contract, review: the term and expiration date, renewal provisions (auto-renewal vs. active renewal required), pricing terms, termination for convenience clauses, assignment provisions (can the contract be assigned to a buyer with or without customer consent?), and any exclusivity or non-solicitation provisions. Contracts that require customer consent to assign are the most vulnerable in a sale — identify these early and plan your approach to securing customer consent as part of the transaction.
Customer reference calls — conducted under NDA and timed appropriately in the due diligence process — provide the most valuable qualitative information about revenue sustainability. A customer who describes their relationship as primarily with the current owner (rather than with the business) is a retention risk that should affect your valuation analysis.