In business model analysis, revenue contribution determines whether a business is heavily dependent upon a single customer for a significant portion of annual revenues.
At the extremes, it's easy to distinguish "large" vs. "small" revenue contributions
A former client of mine sold to only one customer. This customer represented 100% of his revenues. This is clearly "large."
A sweater manufacturer I knew had only five total customers. One of these represented 80% of his total revenues. Again, "large."
I bought about $1,000 of books from Amazon.com (NASADAQ: AMZN) in 2008. Their total sales that year were about $13b. I contributed 0.000008% of their total revenues. This is, to say the least, "small."
The boundary between "large" and "small" can be problematic when a single customer represents 15% or 20% of a company's total revenues.
The SEC says a firm must disclose, in its 10K filings, if a single customer represented 10% (or more) of that year's total sales. They thus think 10% is "large."
The acid test of "large vs. small" is the nature of the pain that the loss of the customer would cause. If losing the customer would be a devastating blow from which the firm might not recover, that customer's revenue contribution is large.
Intel (NASDAQ: INTC), at its peak, grew to over $35b in revenues with less than 10 key customers.
INTC's revenues in 2008 were $37.6 billion. Twenty percent of those revenues came from Hewlett Packard Company (NYSE: HPQ). Dell (NASDAQ: DELL) accounted for 18%.
Thirty eight percent of INTC's 2008 revenues came from two customers.
Is Intel's business model Chicken (small revenue contribution per customer) or Black Widow (large revenue contribution)?
Learn more about a firm that relies upon a few key customers by reading Intel's 10K filings.
It's tough reading as the company really doesn't want you to know what's going on, but look at Amazon.com's 10K filings. Try to determine how much of its revenues comes from Locusts and how much comes from the infrastructure services it sells to corporate accounts. Hint: Amazon.com's profitability isn't a function of its Locust activities.
To learn more about the business model framework: Chickens and Pigs - The Book
