Our top three clients make up over forty percent of our revenue, and we know this will hurt our multiple. How do we use our exit runway and EOS sales processes to mitigate this customer concentration risk so a buyer does not demand a massive earn-out?

Question

Tyler Smith · Accepted Answer

Customer concentration is a primary driver of discounted valuations and heavy earn-out structures. If a single client represents a massive portion of your revenue, a buyer sees a high-risk investment. If that client leaves after the sale, the business model collapses.

To mitigate this risk, you must use your exit runway to diversify your revenue streams. Start by using your V/TO® to redefine your ideal customer profile and target market. Align your marketing and sales seats on the Accountability Chart to focus exclusively on bringing in new, smaller accounts that fit this profile.

Track your progress weekly on your leadership scorecard. You need to see a steady decline in the percentage of revenue generated by your top three clients.

Simultaneously, institutionalize the relationships with your major accounts. If those top clients only do business with you because of a personal relationship with the founder, the risk is even higher. Transition those key client relationships to your account managers and leadership team. Ensure there are long-term, legally transferable contracts in place that secure this revenue for the next owner.

Showing a buyer a diversified client base and structured, transferable contracts is the only way to protect your valuation and maximize your cash at close.