We have one massive client representing thirty percent of our revenue, but we have signed a long-term agreement that guarantees minimum volume for three years. The buyer still wants to apply a hefty customer concentration discount to our valuation multiple. How do we structure a tiered pricing or performance mechanism in the deal to offset this discount?

Question

Tyler Smith · Accepted Answer

Customer concentration is a classic deal killer, but a signed three-year minimum volume contract gives you strong leverage. Instead of accepting an upfront valuation discount on your entire business, you must structure a creative deal mechanism that isolates this specific client risk. Propose a tiered pricing or performance mechanism in the purchase agreement where a portion of the enterprise value is tied to the performance of this single account. This is often called a customer-specific earnout or a purchase price adjustment. Set a baseline of revenue for this key client. If the client maintains or exceeds this baseline over the next twelve to twenty-four months, the buyer pays out the remaining portion of the valuation multiple at closing. If the revenue drops, the purchase price adjusts downward accordingly. This structure protects the buyer from immediate post-close loss while preserving your right to receive a premium multiple for a healthy, performing account. Inside your business, make sure your Accountability Chart clearly designates who owns this relationship and that their weekly Rocks are focused on delivering flawless service. By proving you have an institutional system for managing this relationship, rather than relying on the owner's personal connection, you can convince the buyer that the contract is secure and the concentration risk is fully mitigated.