Earnouts in concentrated deals — account-level protection.

An earnout is supposed to protect a buyer against the risk that the acquired revenue doesn't stay — but on a concentrated book, the standard flat earnout quietly fails to do that. The reason is mechanical: an aggregate retention test averages across the whole book, so it can pass even when the one account that mattered most has walked. On a concentrated book, the protection has to track the specific relationships the deal economics actually depend on, which means going account-by-account.

§ 01 · When account-level appliesThe thresholds.

The thresholds decide the earnout structure. Above 30%–40% top-10 concentration, account-level earnout mechanics are warranted; below it, a flat earnout with a reasonable aggregate retention test typically suffices. There's also a single-account trigger that overrides the aggregate: a book where the top single account drives 20%+ of revenue requires account-level protection regardless of the top-10 total, because the risk is concentrated in one named relationship the aggregate can't capture. These thresholds follow directly from the concentration analysis — a book in the existential-dozen zone needs account-level deal mechanics, as set out in the existential dozen. The earnout is where that concentration analysis becomes a contractual protection.

§ 02 · Why flat earnouts failThe aggregate-test trap.

The aggregate-test trap is the specific way a flat earnout fails on a concentrated book. Imagine a book where the top three accounts are 35% of revenue and the earnout has a 90% aggregate retention test. Lose the single largest account — a 15% hit — and the aggregate retention falls to 85%, which breaches the test, but only by enough to trigger a modest adjustment, while the actual revenue loss is catastrophic relative to that adjustment. Worse, lose a smaller top-10 account and the aggregate may not breach at all, so the buyer eats the loss with no earnout offset. The flat structure averages away exactly the risk it was meant to cover. On a concentrated book, the protection has to be account-specific, which is what the three account-level structures provide.

§ 03 · Three account-level structuresAnd reading seller resistance.

Three structures take the earnout account-level, escalating in protectiveness. Named-account carve-outs assign each named account a defined percentage of the earnout pool, so the loss of any one reduces the pool proportionally. Bucketed retention tests set tiered thresholds — the top-5 must retain at 95%, the next-5 at 90%, the remainder at a portfolio threshold. And specific-client triggers — the most protective form, used in most concentrated deals — make the loss of any named account in a defined tier a material reduction or a full forfeiture of the associated earnout. The seller's likely resistance — "I can't control whether a specific client leaves" — is partially valid but misses the logic: the earnout isn't asking the seller to control every outcome, it's asking them to price the risk being transferred. And the response is itself a signal — a seller who will only accept a flat earnout on a concentrated book is signaling that the transition risk is real and that they'd prefer to keep the upside while pushing the downside to the buyer, which a disciplined buyer reads as a reason to either walk or discount the price.

§ 04 · Transition commitments and parallel negotiationThe full protection.

The earnout doesn't stand alone — it pairs with transition commitments and producer-retention agreements that reduce the underlying account-level risk. Three transition commitments help: explicit introduction protocols per named account (joint meetings within a defined window post-close), named-renewal commitments (the seller participates in the first renewal of each named account), and communication protocols that keep the client experience continuous through the ownership change. A producer-retention overlay calibrates the earnout to who owns each relationship: a named account owned by a staying service producer uses standard earnout mechanics (the producer's continued presence maintains the relationship), while a named account owned by a departing principal carries larger earnout weight (higher transition risk) — so the earnout becomes a portfolio of named-account mechanics tuned to the ownership pattern. Because both address the same risk from two angles, the earnout and the producer-retention agreements should be negotiated in parallel, in the same deal-structuring conversation. The proactive seller posture beats the defensive one: "our top-5 accounts average 12 years, and we'll commit to a named-account retention structure on those five with joint introductions and first-renewal participation" is materially stronger than resisting the earnout request. Across this customer-risk discipline — transition design, concentration analysis, retention measurement, and this deal-structure protection — the same underlying risk is addressed at four sequential layers. The clause-drafting craft for the earnout itself is in drafting the earnout.

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