The buyer is proposing an earnout based on gross revenue targets, but we are worried they will force us to take on low-margin work to hit those numbers, ruining our bottom line. How do we structure earnout metrics around our existing EOS Scorecard and operating model to protect our margins?

Question

Tyler Smith · Accepted Answer

When a buyer structures an earnout solely on top-line revenue, they create a perverse incentive. They want growth at all costs, while you bear the risk of operational collapse. To protect your post-close sanity and the actual value of your business, you must tie earnout milestones to a balanced set of metrics taken directly from your weekly Scorecard.

Instead of raw gross revenue, negotiate for targets based on gross profit margin percentage or a specific contribution margin. This ensures you are not forced to chase unprofitable deals just to hit a raw number. You can also integrate operational health indicators from your EOS® framework. For instance, define customer retention rates or service delivery scores as gateway metrics that must be maintained.

Structure the purchase agreement so that you retain operational control over the specific business unit. Your leadership team must keep the authority to run your weekly Level 10 Meeting™, manage your own Accountability Chart, and execute your Rocks without corporate parent interference. If the buyer insists on changing your pricing model or service delivery methods, the agreement should state that the earnout targets are automatically adjusted downward. Keep the metrics clean, objective, and visible on your Scorecard. This is how you prevent a buyer from moving the goalposts after the ink dries.