A single enterprise customer accounts for thirty-five percent of our total revenue, and every strategic buyer we talk to wants to structure a massive indemnity holdback or a performance earnout to hedge against them leaving. How do we restructure the deal terms or use operational proofs to minimize this haircut at the closing table?

Question

Tyler Smith · Accepted Answer

High customer concentration is a major hurdle that can easily derail a transaction or lead to punitive deal structures like massive earnouts or indemnity holdbacks. If thirty-five percent of your revenue is tied to one client, the buyer assumes that client will leave the moment you exit the business.

To minimize this haircut, you must prove that the relationship is institutional, not personal. Show the buyer that your delivery team and account managers run the day-to-day operations without your involvement. Use your Accountability Chart to illustrate that the client interacts with your systems and your team, not with you.

Additionally, document the integration between your operations and the customer's workflows. If your software or custom processes are deeply embedded in their daily operations, the switching costs for that customer are incredibly high.

If the buyer still insists on structural protection, negotiate a sliding-scale earnout tied specifically to the gross margin of that customer, rather than a broad holdback on the entire purchase price. This protects your cash at close while giving the buyer the downside protection they need, ensuring you do not pay an unnecessary tax on a customer that has no intention of leaving.