We have a massive customer representing fifty percent of our sales, and the buyer is proposing a contingent pricing structure that holds back half the purchase price until after the transition. How do we negotiate a more equitable earnout or escrow?

Question

Tyler Smith · Accepted Answer

High customer concentration is a major risk, but you cannot allow the buyer to shift all that risk onto your shoulders through an unfair earnout structure. If a buyer insists on a large holdback, you must negotiate protective guardrails to ensure you actually get paid.

First, tie the contingent payments to customer retention, not revenue growth. If the concentrated customer stays with the business at their current spend level, you should receive your full payout. Do not let the buyer tie your money to unrealistic sales targets that require you to double the account size post-close.

Second, insist on operational control during the transition period. If the buyer takes over the account management and subsequently alienates the client through poor service, you should not be penalized. Structure the purchase agreement so that any material changes in delivery standards, pricing, or product quality made by the buyer nullify the earnout covenants, triggering an immediate payout of the escrow.

Third, use your Accountability Chart to transition the key relationship from the founders to your leadership team before closing. When you prove that your team runs the relationship through structured, repeatable processes rather than personal founder friendships, you reduce the buyer's perceived risk. This structural handoff allows you to negotiate a lower holdback percentage and a shorter transition window.