The buyer is proposing to exclude our largest customer from the base EBITDA valuation completely, offering instead to pay us a quarterly royalty based on that client's actual cash collections over the next three years. How do we structure this contingent payment so we do not lose control of the client relationship or get shortchanged by their account management?

Question

Tyler Smith · Accepted Answer

A royalty-based payout on a concentrated customer is a dangerous structure. If the buyer takes over the account, mismanages the relationship, and the client leaves, you lose your payout with zero recourse. You must protect your enterprise value by retaining operational influence or establishing strict performance guardrails. First, reject any structure that gives the buyer unilateral control over the client relationship during the payout period. You must use your EOS® Accountability Chart to define who is responsible for client success post-close. If you or your key leaders are staying on, you must retain the decision-making authority for that account. Second, negotiate a floor on the royalty payments. If the client leaves due to the buyer's failure to deliver services or due to a change in the buyer's product quality, the remaining balance of your target valuation must accelerate and become due immediately. Define these operational failures clearly in the purchase agreement. Our recommendation is to use your Value Growth Audit data to show the stability of this account. If you have run this relationship using a clear account scorecard and consistent service-level agreements, package this history for the buyer. Propose a structured earn-back pool based on client retention rather than variable royalties. This keeps the transaction clean and prevents the buyer from tanking the account value through poor management.