Earnout Clause
Contingent purchase price tied to post-close performance, and why most earnouts pay less than projected.
- Metric definition and calculation methodology
- Buyer covenants to support metric achievement
- Acceleration triggers (change of control, key employee departure)
- Independent accountant dispute mechanism
If this clause already feels aggressive in isolation, upload the full contract and see how it combines with payment terms, liabilities, and exit rights.
Analyze My ContractWhat this clause actually does
An earnout makes a portion of purchase price contingent on the target hitting defined performance metrics after close. For SMB deals it typically covers 10% to 30% of purchase price over 1 to 3 years. The seller bets on continued performance; the buyer hedges against overpayment.
Why people get burned by this clause
Studies suggest 50% to 70% of earnouts pay less than projected. The buyer controls the business after close, which means buyer decisions can drive metrics down.
What should make you slow down
- Buyer has no obligation to operate target in ordinary course during earnout period
- Metrics are easily manipulable (revenue without expense controls)
- Buyer can integrate, restructure, or move sales without consent
- No acceleration on change of control during earnout
- Dispute resolution favors buyer's accounting
Where you usually see it
- Asset purchase agreements
- Stock purchase agreements
What the platform checks in the live contract
- Metric definition and calculation methodology
- Buyer covenants to support metric achievement
- Acceleration triggers (change of control, key employee departure)
- Independent accountant dispute mechanism
- Maximum and minimum payout structure
What stronger language usually looks like
- Buyer covenant to operate target in ordinary course
- Metrics use EBITDA or operating margin (not just revenue)
- Acceleration on change of control or buyer breach
- Independent accountant resolves disputes
Definitions worth opening next
Articles that go deeper
If you are the seller, assume the earnout pays half of what is projected and price accordingly. If you are the buyer, write strong protective covenants so the earnout is not litigated.
See how this clause behaves in the real contract.
The clause library gives you judgment. The full review shows how this clause combines with the rest of the agreement, then quotes the exact language, scores the risk, and explains what to push on next.