Our largest customer accounts for thirty-five percent of our total revenue, and the buyer is demanding a massive valuation discount or a highly punitive earnout. How do we structure a customer-specific retention covenant to protect our transaction value without giving up all of our cash at close?

Question

Tyler Smith · Accepted Answer

High customer concentration is a major risk that will always depress a valuation multiple. If a single account represents over thirty percent of your business, the buyer is terrified that the account will walk once you exit. Rather than accepting a massive permanent discount on your enterprise value, you must isolate this specific risk. Propose a targeted customer retention covenant instead of a broad earnout. Structure the deal so that a specific portion of the purchase price is held in a segregated escrow account, tied solely to the revenue performance of that single client for twelve months post-close. If the client remains and maintains their spend, the escrowed funds are released to you dollar-for-dollar. To make this work, you must prove the client relationship is institutionalized. Show the buyer your EOS Accountability Chart to demonstrate that the client interacts with your key account managers, not just the founder. Share your documented processes to prove that the work is delivered through automated systems, ensuring a seamless post-close transition. This approach shifts the buyer's focus from a vague fear of client departure to a structured, manageable risk. It allows you to protect your headline multiple while giving the buyer the financial safety net they need to close the deal.