The buyer wants to structure our earnout based on the retention of our recurring revenue base, but they also want to control our post-close customer success budget. How do we negotiate safe guards?

Question

Tyler Smith · Accepted Answer

An earnout based on revenue retention combined with buyer control over your customer success budget is a dangerous trap. If the buyer slashes your customer service budget or redirects your key account managers to other projects post-close, your retention rates will drop, and you will lose your earnout through no fault of your own.

You must establish strict operational covenants in the purchase agreement. If your earnout is tied to recurring revenue retention, you must maintain operational control over the resources required to secure that revenue.

Define the minimum staffing levels, budget allocations, and marketing support for your customer success team during the earnout period. Use your current Accountability Chart as the baseline. Insist that the seats dedicated to account management and service delivery cannot be altered, defunded, or reassigned without your written consent.

Additionally, negotiate a clause that suspends or automatically pays out the earnout if the buyer breaches these covenants or makes material changes to your operating model. If they integrate your business into their larger corporate structure and eliminate your dedicated customer support team, the earnout must accelerate and pay out in full. This aligns the buyer's post-close behavior with your financial interests.