Few words in M&A trigger as much emotion as “earnout.”

If you’ve ever talked to someone who sold their agency, chances are you’ve heard horror stories:

“We never got our earnout.”
“They changed the rules after closing.”
“It was just a way to shortchange us.”

And I get it. I’ve been on both sides of earnouts — as a seller and as a buyer — and I can tell you this: earnouts can be frustrating when structured poorly, but powerful when done right.

So what exactly is an earnout?
An earnout is a portion of the purchase price that’s paid later, based on the performance of the business after the sale. It’s typically tied to metrics like revenue, EBITDA, or client retention.

Here’s why earnouts exist:

• To bridge valuation gaps. Maybe you think your agency is worth $10M, but the buyer thinks it’s worth $8M. An earnout can close that gap if the business performs as you expect.
  
• To align incentives. The buyer wants to ensure you stay motivated after the sale. The seller gets upside if the company continues to grow.
  
• To manage risk. Buyers want to make sure that key clients or staff don’t vanish post-close. Earnouts reduce their downside if things change.
  

Now, the bad reputation comes from poor design — vague metrics, unfair control, or lack of transparency. If you’re staying on post-sale but the buyer controls the levers that determine your payout, you’ve just given them the ability to “move the goalposts.”

The key is to structure earnouts clearly and fairly:
✅ Define metrics precisely (e.g., “Revenue from existing clients” vs. “total revenue”).
✅ Agree on what’s in your control.
✅ Set timelines that are realistic (usually 1–3 years).
✅ Align reporting and visibility so you can track performance.

When structured this way, earnouts can actually be a win-win. I’ve seen sellers double their initial payout because the business exceeded expectations. In those cases, the earnout wasn’t a burden — it was a reward.

From a buyer’s perspective (mine included), nothing makes me happier than paying an earnout. It means the acquisition worked. It means the founder stayed engaged, clients were retained, and the company grew. That’s a win for everyone.

So before you write off earnouts as “bad,” understand what they really are: a tool. Like any tool, it depends on how it’s used.

👉 If you sold your agency tomorrow and had to choose — would you prefer all cash up front, or a lower upfront price with a chance to earn more later?

Contact us if you’re and agency owner and have considered selling or joining something bigger.

When most agency owners hear the words “due diligence,” their first thought is: “Oh no — this is where the fun ends.”

And to be fair, diligence can be intense. It’s the part of the process where the buyer starts verifying everything you’ve told them — from your financials to your operations, contracts, people, and even culture.

But here’s what many owners don’t realize: due diligence isn’t meant to “catch you out.” It’s meant to confirm confidence. Buyers are about to write a big check, and they want to make sure the story matches the data.

Here’s what a typical diligence process involves:

Financial Review: Buyers dig into your P&Ls, balance sheets, tax returns, AR/AP aging, and customer-level revenue. They’re checking for accuracy, consistency, and hidden risks.

Customer & Revenue Analysis: They’ll look at churn, client concentration (does one client make up 30% of revenue?), contract lengths, and recurring vs. project-based work.

Operational Review: How does your delivery process work? What tools do you use? How efficient is your team?

HR & Payroll: Who are your key employees? Are there employment agreements in place? What’s your compensation structure?

Legal: Corporate filings, intellectual property ownership, insurance, contracts, potential disputes — all get reviewed.

Sound overwhelming? It can be — especially if you’re unprepared. But the sellers who do best in diligence are the ones who start preparing months (or years) before they ever talk to a buyer.

They keep clean, up-to-date financials. They store contracts in one place. They can quickly show customer lists, renewal dates, and retention metrics. In short: they run their business as if a buyer could ask to see it tomorrow.

Here’s what that does:
– It keeps the process efficient (less time answering requests).
– It signals professionalism and transparency.
– And it keeps momentum — which is critical, because long diligence processes kill deals.

I’ve seen deals drag on so long that enthusiasm fades on both sides. I’ve also seen deals close in 45 days because the seller was buttoned up and responsive.

So if you’re an agency owner thinking about selling in the next few years, start treating your business like it’s already in diligence. You’ll be amazed how much smoother — and more profitable — your future exit becomes.

Contact us if you’re and agency owner and have considered selling or joining something bigger.

If I could give agency owners just one metric to obsess over, it wouldn’t be revenue, it wouldn’t be headcount, and it wouldn’t even be profit.

It would be client retention.

Here’s why:

• High retention = recurring revenue. If your clients stay year after year, your revenue base becomes predictable.
  
• Recurring revenue = predictable cashflow. Predictability reduces risk for buyers.
  
• Predictable cashflow = higher multiples. Less risk means buyers are willing to pay more.
  

I’ve seen it play out in real deals. Two agencies with the same $5M in revenue can command completely different valuations. One with 60% annual retention might get a 3× multiple. Another with 90% retention can push toward 6× or higher — even if their margins are identical.

Retention tells a story. It says your clients value your services. It says your team knows how to keep relationships strong. And it says the agency isn’t constantly running on a hamster wheel of new client acquisition just to stay in place.

Of course, improving retention isn’t always easy. It requires:

• Building sticky service offerings (not easily replaced or commoditized).
  
• Investing in client success and account management.
  
• Tracking client satisfaction, not just deliverables.
  
• Proactively solving problems before clients churn.
  

Retention is the “quiet” multiplier because it doesn’t always get the attention it deserves. Founders often chase new logos, but it’s the existing logos that really drive value when it comes time to sell.

So here’s my advice: if you want to increase your eventual exit valuation, don’t just focus on new business development. Look at your current book of clients and ask: What would it take to keep them for the next 5 years?

Contact us if you’re and agency owner and have considered selling or joining something bigger.