Exit & transaction

Business sale earnout calculator

Headline price and cash at completion are rarely the same number. An earnout bridges a valuation gap, but it transfers performance risk back to the seller — often after they have lost control of the business.

Inputs

Result

Risk-adjusted value of the deal

USD 1,627,083.33

Deferred consideration at face value
USD 700,000
Present value of tranche 1
USD 233,333.33
Present value of tranche 2
USD 93,750
Discount to headline price
18.65%
Cash at completion as % of headline
65%
  • Compare the risk-adjusted total with any all-cash offer before choosing the higher headline.

How to use this calculator

  1. 1Enter the headline price and the amount paid in cash at completion.
  2. 2Enter each earnout tranche, its probability and when it pays.
  3. 3Read the risk-adjusted present value of the total deal.

Pricing the risk you retain

Value earnout tranches by probability and discount them to present value. An earnout worth 400,000 at 60% probability, payable in two years at a 20% discount rate, is worth about 167,000 today, not 400,000.

Most negotiations improve when the seller shows this arithmetic: a smaller guaranteed payment often beats a larger contingent one.

Terms that protect the seller

Define the metric precisely — revenue is harder to manipulate than EBITDA. Cap the buyer's ability to change pricing, allocate group overheads or move customers to another entity during the earnout period.

Include acceleration on a change of control, and agree a dispute resolution mechanism before completion rather than after the first missed target.

Call this tool from the API

Every calculator on this site is also an endpoint. Get a free key from the developer page and call it from your product, spreadsheet or AI agent.

curl -X POST https://utopiavalue.co/api/v1/tools/earnout-calculator \
  -H "Authorization: Bearer $UTOPIA_API_KEY" \
  -H "Content-Type: application/json" \
  -d '{"headlinePrice":2000000,"cashAtCompletion":1300000,"tranche1Amount":400000,"tranche1Probability":70,"tranche1Year":1,"tranche2Amount":300000,"tranche2Probability":45,"tranche2Year":2,"discountRatePercent":20,"currency":"USD"}'

Frequently asked questions

How common are earnouts?

Very common in SME deals where earnings depend on the owner. They typically cover 10-40% of headline price over one to three years.

Should the earnout be on revenue or profit?

Revenue is cleaner because the buyer controls costs after completion. If profit is used, agree the accounting policies in the sale agreement.

What if I stay on after the sale?

Separate your employment terms from the earnout. Otherwise, being dismissed can cost you both the salary and the deferred consideration.