What it means
Strategists usually split growth into concentration, which deepens the existing business, and diversification, which adds new ones. A concentration strategy can mean selling more of the same product to the same customers, taking that product into new geographies, or building better versions of it for the market you already serve.
What unites those routes is that the company keeps operating from one core set of skills. It matters commercially because focus compounds.
Every dollar of research, marketing and training lands on the same product, so learning accumulates faster and unit costs fall as volume rises. Investors often pay more for a focused business precisely because the story is easy to check.
The usual measure is revenue concentration, the share of turnover coming from the core line, and management teams pursuing this strategy deliberately let that share rise. A ratio above roughly 80% signals genuine focus, while anything under half suggests the company is diversified whether it means to be or not.
Boards tend to set a target range rather than a single figure. The risk is obvious once stated: concentration removes the cushion that a spread of businesses provides.
A patent expiry, a regulatory change or the loss of one large customer can remove most of the revenue base in a single year, so lenders often ask focused borrowers for tighter covenants. In practice most companies run a concentration strategy for a defined period rather than forever, usually while the core market is still growing.
Once growth slows, the same board often pivots to related diversification using the cash the focused years generated. Knowing when to switch is the hard part, and waiting for the core to stall is usually too late.
In practice
Real-world examples.
Example
A dental software firm turns down three requests to build veterinary and physiotherapy versions of its product. Instead it spends two years adding insurance claim handling for dentists only, and wins 40% of the practices in its home market because no general purpose rival can match the depth.
Example
A regional bakery closes its cafe arm and its wedding cake service to focus entirely on supplying supermarket own label bread. Margins per loaf are thinner, but volume triples and the simplified operation cuts overhead by a fifth.
Example
A recruitment agency drops five industry desks to specialise purely in cybersecurity hiring. Fee rates rise from 15% to 22% of first year salary because clients accept that the specialist knows the candidate pool better than a generalist could.
Think of it
“Concentration strategy is putting all your focus in one area-specializing intensely.
Formula
Calculation
Revenue concentration = revenue from the core line / total revenue x 100
Take an invented specialist coffee roaster with total revenue of $30,000,000, of which $27,000,000 comes from its wholesale bean business and $3,000,000 from a small equipment resale sideline. Revenue concentration = $27,000,000 / $30,000,000 x 100 = 90%.
Management commits the next year's entire capital budget to the wholesale line, which grows 15% while the sideline stays flat. Core revenue becomes $27,000,000 x 1.15 = $31,050,000, total revenue becomes $31,050,000 + $3,000,000 = $34,050,000, and concentration rises to $31,050,000 / $34,050,000 x 100 = 91.2%.Case study
Seen in the real world.
This is an illustrative and entirely fictional example. Brightloom Fasteners, an invented industrial supplier, made screws, hand tools, packaging tape and safety gloves, with revenue of $30,000,000 split fairly evenly across the four lines. Every line was profitable, none was growing, and the sales team spent its days explaining a catalogue nobody could remember.
A new managing director ran the numbers and found that aerospace grade fasteners, only 20% of revenue, produced 55% of gross profit. Over eighteen months the fictional company sold the tape and glove businesses, redirected the entire product development budget to fasteners, and pushed revenue concentration in the core line above 85%.
Three years later Brightloom's revenue was lower in absolute terms but operating profit had nearly doubled, and the group had become the obvious acquisition target for a larger aerospace supplier. The board also accepted a real cost: a single aerospace customer now accounted for a quarter of sales, so it negotiated a three year supply contract to reduce that exposure.
Watch out
Common mistakes.
- Treating concentration as a permanent identity rather than a phase, and staying focused long after the core market has stopped growing.
- Confusing concentration with simply doing less, when the strategy only pays off if the money saved is reinvested into the core line.
- Ignoring customer concentration while celebrating product concentration, so the company ends up dependent on a handful of buyers without noticing.
Questions
People also ask.
Is a concentration strategy riskier than diversification?
Usually yes in the short term, because there is no second business to absorb a shock, but it is often less risky than diversifying into industries management does not understand.
How do you know when the core market is exhausted?
Watch for volume growth slowing while discounting rises; that combination normally means you are buying share rather than finding new demand.
Can a small company realistically choose anything else?
Rarely, since limited capital and management time make focus close to compulsory until the business reaches scale.
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