Earnout

Earnout — a contingent slice of the purchase price paid only if agreed targets (revenue, SDE, customer retention) are hit after closing. Its honest job is bridging a genuine forecast disagreement — the seller believes the big contract renews; you won’t pay for that belief. Its failure mode is structural: the buyer now controls the decisions that drive the seller’s payout, which is why earnouts breed disputes. Define the metric, who controls what, and measurement dates precisely — or skip it and let price carry the disagreement.

First used in: 4.2 · Buying cash flow: acquisition I