Every customer relationship is a peer relationship

The customer is always right (so they say). For startups especially, the instinct is to do whatever it takes to keep a big customer happy. But when one customer has outsized leverage over your business, the relationship stops being a partnership. It becomes a dependency.

We have a rule of thumb that no customer should be more than 5% of revenue.

In the early days a fast growing SaaS company became our largest customer. It's a story I've told people privately where the CEO, someone I had long admired, stopped by our chatroom on a Sunday to ask questions about the product. It felt casual, and they didn't say they were going to sign up. The next week people on their team implemented Customer.io for all their new trials! I was in awe that we had this company as our customer. After a couple of months on credit card billing, they spun up their legal process. We had our first agreement outside of our terms of service and a $5,000 a year contract. We were still so early as a business that their account was more than 5% of our revenue.

We got lucky that they were a wonderful customer. But the situation was still a dependency. One canceled contract means a harder time fundraising. One feature demand backed by a renewal threat, and you're choosing between your roadmap and your revenue. When your future depends on satisfying one customer, you can't say no.

That's when we came up with our 5% rule of thumb. If we can avoid revenue concentration, then we can approach every relationship as a peer relationship. When no customer holds outsized leverage, we can have honest conversations about what we will and won't build. When there's someone being unreasonable with our team, it won't end our company to say no to demands. Over time we've held true to our approach and today no customer is more than 1% of revenue and our top 10 customers account for less than 5% of revenue.

The 5% rule means we can approach every customer relationship as a peer relationship. We want every customer to be happy. We own our mistakes. But no single customer gets to define our future. That's better for us, and honestly, it's better for them too.