Due Diligence

Customer Due Diligence

Learn to verify the customer base behind the revenue (real, concentrated or diversified, satisfied, transferable) so you can tell durable revenue from fragile revenue.

  • Beginner
  • 11 min total
  • 12 chapters

What decision this helps you make: Whether a business's revenue is durable or fragile, judged by the quality of the customers producing it.

What this topic is

Customer due diligence verifies the quality of a business's customer base, not just its revenue size: are the customers real, is revenue concentrated, are they satisfied and loyal, are relationships transferable, and how were they acquired?

Why it matters

Revenue is only as durable as the customers behind it. Two businesses with identical revenue can be worth very different amounts. Many satisfied, diversified, recurring customers are high quality; a few unhappy, concentrated, owner-tied, or one-off ones are fragile.

Who should learn it

Anyone buying, investing in, or valuing a business by its revenue.

What you will understand

  • Understand customer diligence: the quality behind the revenue
  • Verify customers are real (tied to bank records)
  • Check concentration, satisfaction, retention, and transferability
  • Tell durable revenue from fragile revenue

Prerequisites

Common misconception

"The business does $2M in revenue, so it's a $2M-revenue business. That's the number that matters." Not on its own. $2M from 500 satisfied, recurring, diversified customers is durable; $2M from three unhappy customers about to leave, or from a one-time spike, is fragile. Customer diligence looks past the top-line number to the quality of the customers producing it, because revenue is only as good as the customers behind it.