Earnout

An earnout is the part of a sale transaction that's conditional on future performance. This performance is usually tied to revenue, gross profit margin, customer retention and/or employee retention. Most earnout periods last from 1-3 years. Earnout amounts can be calculated either on an annual, bi-annual, or quarterly basis, but annual is most common. Earnouts can help close the gap between the seller's expectations and the buyer's confidence in the startup.