We have a massive client that accounts for thirty-five percent of our gross margin, and every buyer we talk to wants to slash our upfront multiple because of it. How do we structure the purchase agreement or use specific deal terms to neutralize this customer concentration risk?

Question

Tyler Smith · Accepted Answer

Customer concentration is one of the most common reasons a deal falls apart or gets heavily discounted. If one client represents thirty-five percent of your gross margin, a buyer sees a massive risk. If that client leaves post-sale, the buyer's return on investment is destroyed.

To protect your valuation without walking away from the deal, you must use creative deal structures to share the risk.

One effective method is to structure a portion of the purchase price into a targeted earnout or seller note that is specifically tied to the retention of that single key account. For example, you can agree that a specific percentage of the enterprise value will be held in escrow or structured as a contingent payment, which releases only if that client renews their contract or maintains a specific volume of business over the next twelve to twenty-four months.

Another option is to negotiate a valuation collar. This structure adjusts the purchase price up or down within a pre-negotiated range based on the actual revenue generated by that client post-close. This protects the buyer from a sudden drop in revenue while ensuring you receive the full value if the account remains stable.

To make these structures work, you must also prove to the buyer that the client relationship does not live solely in your head. Show them your Accountability Chart, proving that your account managers and delivery teams run the daily relationship. This operational proof, combined with a risk-sharing deal structure, prevents the buyer from slashing your upfront multiple.