An earnout is a contingent slice of a deal’s purchase price, paid only if the acquired business hits agreed targets — genuinely uncertain, unlike a structured settlement’s guaranteed payments.
How it works
The maximum earnout is first weighted by the estimated probability of actually hitting the target, then discounted back to present value the same way this site’s NPV calculator discounts any future cash flow.
What this does not include
This uses a single probability estimate for the entire earnout — a real earnout with multiple tiered targets (e.g. partial payout at 80% of target, full at 100%) would need each tier probability-weighted and discounted separately, which this simplified single-tier version doesn’t do.
How to use this calculator
- Enter the maximum earnout payout and estimated probability of achieving the target.
- Enter years until payout and a discount rate.
Frequently asked questions
Why weight by probability before discounting?
Because an earnout isn’t a guaranteed payment like a bond coupon — the uncertainty of actually hitting the target is a separate risk from the time value of money, and both need to be accounted for.
Who typically estimates the probability?
Both buyer and seller often have different views — the seller (who set the target) may see it as more achievable than the buyer does, which is itself often a point of negotiation.
Is an earnout the same as a structured settlement?
No — a structured settlement’s payments are contractually guaranteed; an earnout’s payment depends on hitting a real business performance target that may or may not be achieved.
