Earnout Calculator
See what your earnout is really worth — modeled across low/base/high performance scenarios and probability-weighted, because earnouts pay out fully less often than sellers expect.
Written by Dorothy Ibrahim, 10+ years in banking & finance
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How we calculate this
This calculator models what a contingent earnout is really worth by computing the payout under low, base, and high performance scenarios and probability-weighting them into an expected value. Sellers habitually count the full earnout as part of the price; earnouts pay out fully less often than sellers expect, and the probability-weighted number is the honest one to negotiate and plan around. Three payout mechanics are supported: all-or-nothing at the target, linear from a floor to the target, and a simplified tier structure.
The formulas
- All-or-nothing payout
- full earnout if the metric reaches the target; nothing below itAlso applies automatically whenever the floor is set at or above the target.
- Linear payout
- maximum earnout × (actual metric − floor) ÷ (target − floor), clamped between $0 and the maximum
- Tiered payout (simplified)
- nothing below the floor; 50% of the maximum between floor and target; 100% at or above the target
- Expected earnout
- sum of (scenario probability × scenario payout) across low, base, and high scenariosProbabilities that do not sum to 100% are normalized, with a warning.
- Total deal value
- cash at close + earnout — shown as a range (worst to best scenario) and as the probability-weighted expected total
Worked example
- Say $800,000 cash at close plus up to $400,000 of earnout on an EBITDA target of $200,000, paid linearly from a $150,000 floor, with scenarios of $160,000 EBITDA (25% likely), $200,000 (50%), and $230,000 (25%).
- Low scenario: ($160,000 − $150,000) ÷ ($200,000 − $150,000) = 20% of the way from floor to target, so the payout is 0.2 × $400,000 = $80,000.
- Base scenario: the $200,000 target is hit exactly, paying the full $400,000. High scenario: $230,000 exceeds the target, and the payout is capped at $400,000.
- Expected earnout = 0.25 × $80,000 + 0.50 × $400,000 + 0.25 × $400,000 = $320,000.
- Total deal value ranges from $880,000 (low) to $1,200,000 (high), and the probability-weighted total is $800,000 + $320,000 = $1,120,000.
- So the headline "$800,000 + $400,000" deal is realistically worth about $1,120,000 — $80,000 less than the headline — before considering buyer control of the metric.
Rates, benchmarks & sources
- The expected earnout is computed entirely from your own scenarios and probabilities — the tool applies no industry payout statistics. — Probability-weighted expected value (standard decision analysis; no external benchmark)
Figures current as of 2026-07-02. See our methodology & editorial standards for how constants are versioned and verified.
What this tool doesn’t model
- Real earnouts are contract-specific: measurement definitions, payment timing, offsets, caps, catch-up provisions, and acceleration clauses all live in the purchase agreement, and this simplified model cannot capture them.
- The tiered formula here is a fixed simplification (0% / 50% / 100%); actual tiered earnouts define their own breakpoints and percentages.
- Scenario probabilities are your estimates — the expected value is only as honest as those inputs, and sellers tend to be optimistic about post-close performance they no longer control.
- Ignores the time value of money and credit risk: earnout payments arrive years later and depend on the buyer both measuring fairly and being able to pay.
- Tax treatment of earnout payments (installment sale rules, imputed interest, capital vs ordinary character) is not modeled — that alone can change what an earnout is worth to you.
Frequently asked questions
Why is my deal worth less than the headline price?
Because the earnout portion is contingent, not promised. The headline adds cash at close to the maximum earnout, but the maximum only arrives if performance targets are fully hit — under your own scenario probabilities, the expected value is lower. In the default example, "$800,000 plus up to $400,000" is realistically worth about $1,120,000, not $1,200,000. Negotiate, plan, and compare offers on the probability-weighted number.
What does the floor do in a linear earnout?
The floor is where the payout starts: below it you receive nothing, and from the floor to the target the payout scales linearly from $0 up to the maximum. In the default example, hitting $160,000 against a $150,000 floor and $200,000 target pays 20% of the maximum. Where the floor and target sit relative to realistic performance decides most of the earnout’s value — thresholds set above what the business will plausibly do under buyer management make the earnout mostly decorative. If the floor is set at or above the target, there is no partial band at all and the payout becomes all-or-nothing.
Should the earnout be based on revenue or EBITDA?
Sellers generally fare better with revenue targets: revenue is harder for a buyer to manage downward than earnings, which can be depressed by allocated overhead, added management fees, or accelerated spending after close. If the buyer insists on an earnings metric, the definition needs to be nailed down in writing — GAAP-defined, with excluded cost categories and audit rights — because buyer-controlled metrics are the classic earnout dispute.
How likely is an earnout to actually pay out?
This tool deliberately uses your own scenario probabilities rather than quoting an industry statistic, because payout odds depend entirely on how achievable the targets are and who controls the levers post-close. The structural reality is what matters: the buyer runs the business during the earnout period, and the seller is betting on performance they no longer control. Model a genuinely pessimistic low scenario — if the expected total still makes the deal acceptable, the earnout risk is priced in.
Is this calculator enough to evaluate the earnout in my purchase agreement?
No — it models the payout arithmetic of three common structures, but real earnouts are creatures of contract. Measurement definitions, payment schedules, offsets against indemnification claims, acceleration on resale, and dispute procedures all change the economics, and tax treatment of the payments adds another layer. Use the tool to compare offers and sanity-check headline prices, and have an M&A attorney and CPA review the actual agreement.
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themoneysheet provides educational estimates, not financial, tax, or legal advice. Figures use published rates and formulas current as of the date shown, but your situation may differ. Consult a qualified professional (CPA, attorney, or licensed advisor) before making financial decisions.