Free calculator
Earnout scenario calculator
- Achievement vs target
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- Earnout paid
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- Total purchase price
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- Total as % of base
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- Miss / target / beat
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Models the payout mechanics only. It cannot tell you whether the metric is the right one, who controls the levers that move it, or how a dispute gets resolved — and those decide whether an earnout pays out or ends in litigation far more often than the arithmetic does.
Model the outcome nobody wants to discuss
Earnout negotiations concentrate on the target, because that is the optimistic case both parties are prepared to talk about. The disputes happen at the other end.
Set the actual result below the floor and look at what the seller receives: nothing. If that outcome is plausible — and it usually is, or you would not be using an earnout — then the seller has been offered a price that might turn out to be much lower than the headline. They will price that in, and they should. Better to have that conversation now, with the scenarios on screen, than to discover the gap after signing.
A cliff invites a fight; a slope does not
An earnout that pays nothing at 99% of target and everything at 100% creates enormous pressure on a single number — and on whoever is in a position to influence it. Sliding the payout between a floor and a full-payout threshold takes most of that pressure out, because being slightly under produces slightly less rather than nothing at all.
The floor and full-payout fields here let you see the difference. Set them equal and you have a cliff; separate them and you have a slope. Almost every earnout that ends badly had a cliff in it.
What actually decides whether an earnout works
None of it is arithmetic:
- The metric. Revenue is easy to measure and easy to inflate. Net profit exposes every cost decision you make as the new owner to argument. Gross profit often sits usefully in between.
- Control. You will be running the business while the seller’s money depends on how it performs. Either constrain your own discretion in writing, or expect your decisions to be questioned.
- Reporting. A seller who sees nothing for twelve months and then a number they dislike will dispute it, and will be reasonable to do so.
- Dispute resolution. Name the mechanism before you need it.
All four are covered in the earnout guide, and the short version is in the glossary entry. Raise the earnout with your lender too — it is a future claim on the business’s cash, and they will have views.
Frequently asked questions
Which metric should the earnout use?
Whichever is closest to the actual uncertainty and hardest to manipulate. If the question is whether a big customer renews, measure that, not total revenue. Whatever you choose, define it in accounting terms in the agreement \u2014 "gross profit" means at least three different things without a definition.
Is a cliff ever the right structure?
Occasionally, where the uncertainty genuinely is binary \u2014 a contract renews or it does not. Where the outcome is continuous, a cliff creates a large incentive around a single number and a correspondingly large incentive to argue about it. Default to a slope.
How long should the earnout period be?
Long enough for the uncertainty to resolve and short enough that you are not running someone else\u2019s business by proxy for years. One to two years is common on small deals, but the right answer is however long it takes for the specific question to be answered.
What if I sell the business during the earnout period?
Whatever the agreement says \u2014 which is why it must say something. An unaddressed sale, refinancing or major restructuring during the period is a predictable source of litigation. Deal with acceleration or protection explicitly.
Educational only — not a valuation, a loan pre-approval, or a lender's number. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. The formulas behind this tool are documented on the methodology page.