{"id":82,"date":"2025-11-19T14:44:11","date_gmt":"2025-11-19T14:44:11","guid":{"rendered":"https:\/\/www.herringbonedigital.com\/blog\/?p=82"},"modified":"2025-11-19T17:44:47","modified_gmt":"2025-11-19T17:44:47","slug":"post-10-of-254-earnouts-explained","status":"publish","type":"post","link":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/","title":{"rendered":"Post #10 of 25 \u2013 Earnouts Explained"},"content":{"rendered":"\n<p>Few words in M&amp;A trigger as much emotion as <strong>\u201cearnout.\u201d<\/strong><\/p>\n\n\n\n<p>If you\u2019ve ever talked to someone who sold their agency, chances are you\u2019ve heard horror stories:<\/p>\n\n\n\n<p>\u201cWe never got our earnout.\u201d<br>\u201cThey changed the rules after closing.\u201d<br>\u201cIt was just a way to shortchange us.\u201d<\/p>\n\n\n\n<p>And I get it. I\u2019ve been on both sides of earnouts \u2014 as a seller and as a buyer \u2014 and I can tell you this: earnouts can be <strong>frustrating<\/strong> when structured poorly, but <strong>powerful<\/strong> when done right.<\/p>\n\n\n\n<p>So what exactly <em>is<\/em> an earnout?<br>An earnout is a portion of the purchase price that\u2019s paid <strong>later<\/strong>, based on the performance of the business after the sale. It\u2019s typically tied to metrics like revenue, EBITDA, or client retention.<\/p>\n\n\n\n<p>Here\u2019s why earnouts exist:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>To bridge valuation gaps.<\/strong> Maybe you think your agency is worth $10M, but the buyer thinks it\u2019s worth $8M. An earnout can close that gap if the business performs as you expect.<br><\/li>\n\n\n\n<li><strong>To align incentives.<\/strong> The buyer wants to ensure you stay motivated after the sale. The seller gets upside if the company continues to grow.<br><\/li>\n\n\n\n<li><strong>To manage risk.<\/strong> Buyers want to make sure that key clients or staff don\u2019t vanish post-close. Earnouts reduce their downside if things change.<br><\/li>\n<\/ul>\n\n\n\n<p>Now, the bad reputation comes from <strong>poor design<\/strong> \u2014 vague metrics, unfair control, or lack of transparency. If you\u2019re staying on post-sale but the buyer controls the levers that determine your payout, you\u2019ve just given them the ability to \u201cmove the goalposts.\u201d<\/p>\n\n\n\n<p>The key is to structure earnouts clearly and fairly:<br>\u2705 Define metrics precisely (e.g., \u201cRevenue from existing clients\u201d vs. \u201ctotal revenue\u201d).<br>\u2705 Agree on what\u2019s in your control.<br>\u2705 Set timelines that are realistic (usually 1\u20133 years).<br>\u2705 Align reporting and visibility so you can track performance.<\/p>\n\n\n\n<p>When structured this way, earnouts can actually be a <strong>win-win<\/strong>. I\u2019ve seen sellers double their initial payout because the business exceeded expectations. In those cases, the earnout wasn\u2019t a burden \u2014 it was a reward.<\/p>\n\n\n\n<p>From a buyer\u2019s perspective (mine included), nothing makes me happier than paying an earnout. It means the acquisition worked. It means the founder stayed engaged, clients were retained, and the company grew. That\u2019s a win for everyone.<\/p>\n\n\n\n<p>So before you write off earnouts as \u201cbad,\u201d understand what they really are: a tool. Like any tool, it depends on how it\u2019s used.<\/p>\n\n\n\n<p>\ud83d\udc49 If you sold your agency tomorrow and had to choose \u2014 would you prefer all cash up front, or a lower upfront price with a chance to earn more later?<\/p>\n\n\n\n<p><strong><em><a href=\"https:\/\/www.herringbonedigital.com\/contact.html\">Contact us <\/a>if you\u2019re and agency owner and have considered selling or joining something bigger.<\/em><\/strong><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Few words in M&amp;A trigger as much emotion as \u201cearnout.\u201d If you\u2019ve ever talked to someone who sold their agency, chances are you\u2019ve heard horror stories: \u201cWe never got our earnout.\u201d\u201cThey changed the rules after closing.\u201d\u201cIt was just a way to shortchange us.\u201d And I get it. I\u2019ve been on both sides of earnouts \u2014 [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-82","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Post #10 of 25 \u2013 Earnouts Explained - Herringbone Digital Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Post #10 of 25 \u2013 Earnouts Explained - Herringbone Digital Blog\" \/>\n<meta name=\"twitter:description\" content=\"Few words in M&amp;A trigger as much emotion as \u201cearnout.\u201d If you\u2019ve ever talked to someone who sold their agency, chances are you\u2019ve heard horror stories: \u201cWe never got our earnout.\u201d\u201cThey changed the rules after closing.\u201d\u201cIt was just a way to shortchange us.\u201d And I get it. I\u2019ve been on both sides of earnouts \u2014 [&hellip;]\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Post #10 of 25 \u2013 Earnouts Explained - Herringbone Digital Blog","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/","twitter_card":"summary_large_image","twitter_title":"Post #10 of 25 \u2013 Earnouts Explained - Herringbone Digital Blog","twitter_description":"Few words in M&amp;A trigger as much emotion as \u201cearnout.\u201d If you\u2019ve ever talked to someone who sold their agency, chances are you\u2019ve heard horror stories: \u201cWe never got our earnout.\u201d\u201cThey changed the rules after closing.\u201d\u201cIt was just a way to shortchange us.\u201d And I get it. I\u2019ve been on both sides of earnouts \u2014 [&hellip;]","schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/#article","isPartOf":{"@id":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/"},"author":{"name":"herringbone","@id":"https:\/\/www.herringbonedigital.com\/blog\/#\/schema\/person\/7316fda9199bd356f7e1c4d9685a87b5"},"headline":"Post #10 of 25 \u2013 Earnouts Explained","datePublished":"2025-11-19T14:44:11+00:00","dateModified":"2025-11-19T17:44:47+00:00","mainEntityOfPage":{"@id":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/"},"wordCount":449,"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/","url":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/","name":"Post #10 of 25 \u2013 Earnouts Explained - Herringbone Digital Blog","isPartOf":{"@id":"https:\/\/www.herringbonedigital.com\/blog\/#website"},"datePublished":"2025-11-19T14:44:11+00:00","dateModified":"2025-11-19T17:44:47+00:00","author":{"@id":"https:\/\/www.herringbonedigital.com\/blog\/#\/schema\/person\/7316fda9199bd356f7e1c4d9685a87b5"},"breadcrumb":{"@id":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/www.herringbonedigital.com\/blog\/2025\/11\/19\/post-10-of-254-earnouts-explained\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.herringbonedigital.com\/blog\/"},{"@type":"ListItem","position":2,"name":"Post #10 of 25 \u2013 Earnouts Explained"}]},{"@type":"WebSite","@id":"https:\/\/www.herringbonedigital.com\/blog\/#website","url":"https:\/\/www.herringbonedigital.com\/blog\/","name":"Herringbone Digital Blog","description":"","inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/www.herringbonedigital.com\/blog\/#\/schema\/person\/7316fda9199bd356f7e1c4d9685a87b5","name":"herringbone"}]}},"_links":{"self":[{"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/posts\/82","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/comments?post=82"}],"version-history":[{"count":2,"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/posts\/82\/revisions"}],"predecessor-version":[{"id":84,"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/posts\/82\/revisions\/84"}],"wp:attachment":[{"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/media?parent=82"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/categories?post=82"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.herringbonedigital.com\/blog\/wp-json\/wp\/v2\/tags?post=82"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}