As-Earned distressed structures — the ultimate risk transfer.

Unlike a fixed-price deal or even a standard earnout (where the earnout is a "bonus" on top of a base price), the As-Earned deal makes the entirety — or vast majority — of the purchase price contingent on post-closing performance. It is the buyer's perfect hedge and the seller's structural surrender of control.

§ 01 · Pay-as-you-go mechanicsZero upfront, commission split, total contingency.

Zero upfront liquidity. The seller receives little to no cash at closing. The "Guaranteed Price" is effectively zero. Some structures include a nominal closing payment ($10K–$25K) to support installment-sale tax characterization, but it is symbolic relative to the deal's total potential value.

Commission split. The math is typically a simple split of renewal commissions over a defined term: 50% to seller / 50% to buyer for 2–3 years. If a client leaves in Month 2, the seller is paid for Month 1 and nothing more. No floors, no minimum guarantees, no retroactive catch-up provisions.

The buyer's perfect hedge. Zero-risk acquisition. The buyer pays only for revenue actually collected, eliminating downside exposure from attrition, market shifts, or poor records. Every category of post-close risk shifts to the seller.

Theoretical maximum. If retention holds perfectly, a 50% split for 6 years can yield headline numbers reaching the 8–10× market band per the readiness model — far higher than what a distressed-asset All-Cash offer would deliver. But that scenario requires flawless execution by a buyer the seller no longer controls.

§ 02 · The Control ParadoxThe fundamental flaw.

The seller's payout depends entirely on client retention — yet the seller surrenders the very levers (service quality, responsiveness, carrier relationships, staffing) that ensure retention.

Betting on the buyer's competence. The seller is wagering their retirement on the buyer's operational competence, not on their own book. If the buyer is understaffed or fumbles the transition, the seller foots the bill via lost commission payments. A poorly-staffed acquirer can destroy retention even with the best book in the country.

Vulnerability to "blood in the water." When competitor producers learn an agency has been sold via As-Earned, they often launch targeted poaching campaigns. With no operational authority and no service infrastructure of their own, the seller cannot defend the book — only watch payments shrink.

§ 03 · Reverse Due Diligence — non-negotiableAudit the buyer harder than they audit you.

In an As-Earned deal, the seller must audit the buyer as rigorously as the buyer audits them.

Key reverse-diligence questions. What are the buyer's current retention rates on previously acquired books? (Industry-leading is above 92%; below 85% is a red flag.) Do they have adequate staffing capacity to absorb this book? (Producer-to-account ratios; CSR caseloads.) Are they financially stable enough to maintain service quality during integration? What's their carrier appointment quality?

Audit Rights — non-negotiable contract protections. Right to inspect the buyer's financial records to verify commission calculations. Quarterly reporting on retained client list with policy-level detail. Right to third-party audit at the seller's expense (binding on both parties). Defined dispute resolution path. Without these, the seller blindly trusts the buyer's monthly reporting — and has no recourse when calculations don't match expectations.

§ 04 · When As-Earned makes sense — and when it doesn'tThree legitimate use cases.

Distressed assets. Agencies with declining revenue, poor records, or operational failure where buyers will not write a fixed-price check. As-Earned allows a transaction to happen by shifting all risk to the seller. The outcome typically sits firmly in the 4–6× distressed-or-internal band per the readiness model — but alternatives may be zero.

Small fold-ins (revenue under $150K). For very small books, the cost of legal and financial due diligence often outweighs the risk of a fixed price. As-Earned bypasses the diligence friction. The book is "folded in" to the buyer's existing infrastructure with minimal transition cost.

Unmanaged succession (death or disability). Following the death or disability of an owner, where client relationships are already at risk, As-Earned offers a rapid "lifeboat" solution. Gets the book under professional management quickly, preserving some value for the estate or family.

§ 05 · The tax minefieldCapital Gains versus Ordinary Income.

If the deal is structured simply as "I'll pay you half the commissions," the IRS may view this not as the sale of a capital asset but as a Consulting Arrangement or Commission Split. That recharacterizes proceeds from Capital Gains (~20%) to Ordinary Income (up to 37% plus FICA self-employment tax) — nearly doubling the effective tax rate.

Defensive structuring required. To preserve Capital Gains treatment, the deal must be legally structured as an Installment Sale of defined assets (client list, goodwill, expirations) with a calculated purchase-price mechanism distinct from compensation for services. Required elements: defined purchase-price calculation mechanism, transfer of asset ownership at closing, no employment relationship between seller and buyer post-close, IRS Form 6252 filed to elect installment method.

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