--- title: "How should you structure an earnout when buying a website or small SaaS?" url: https://firstpassmemo.com/answers/earnout-terms-when-buying-a-website/ updated: 2026-10-28 publisher: FirstPass Memo (hello@firstpassmemo.com) --- Answers # How should you structure an earnout when buying a website or small SaaS? Short answer: An earnout pays part of the price after closing, only if agreed targets are hit. Tie it to a metric both sides can see, such as revenue collected in Stripe, measure it at checkpoints over 6 to 12 months, cap the total, list what you may change, and hold the money in escrow if you can. Updated 28 October 2026 · Figures checked against their sources on 28 October 2026 · By Joan Murphy (https://firstpassmemo.com/about/joan-murphy/) (pen name) · How we check (https://firstpassmemo.com/methodology/) · Corrections (https://firstpassmemo.com/editorial-policy/) ## Check a listing now, free FirstPass Memo offers a free red-flag checker for business-for-sale listings and a $79 first-pass memo on a specific listing you send, paid after delivery. Paste any listing below for payback, the asking multiple and its red flags. Nothing you paste leaves your browser. Open the full checker (https://firstpassmemo.com/checker/) to unlock every flag with its seller question. Only know the price and monthly profit? Put them in the link and the check runs on its own: firstpassmemo.com/checker/?ask=45000&profit=1500 (https://firstpassmemo.com/checker/?ask=45000&profit=1500&via=box). ## What is an earnout? An earnout is part of the purchase price that the buyer pays after closing, and only if the business hits targets both sides agreed in writing. It is a way to close a gap: the seller believes revenue will hold or grow, the buyer is not sure, so the uncertain part of the price is paid only if it turns out to be real. It differs from a seller note (https://firstpassmemo.com/answers/how-does-seller-financing-work-when-buying-a-website/), which the buyer owes whatever happens, and from a holdback in escrow (https://firstpassmemo.com/answers/how-does-escrow-work-when-buying-a-website/), which covers breaches of the seller's promises rather than performance. ## When does an earnout make sense? - Revenue is concentrated in one customer, sponsor or affiliate program, and you cannot confirm it will stay; see how to check customer concentration (https://firstpassmemo.com/answers/how-to-check-customer-concentration-before-buying-a-website/). - The listing has a short history or a recent spike; our checker flags revenue concentrated in a recent spike (https://firstpassmemo.com/flags/revenue-concentrated-in-a-recent-spike/) and under 12 months of history (https://firstpassmemo.com/flags/under-12-months-of-history/). - The seller's asking multiple is above what the trailing numbers support, and they will not move on the headline price. - Traffic depends on Google, and a core update could change the picture within months of the sale. It makes less sense when the business needs big changes after you buy it, because your changes will blur whether a target was missed through the seller's numbers or your decisions. ## Which terms should you write down? - The metric. Use one both sides can see without argument, such as gross revenue collected in Stripe or the payment processor, or sessions in the analytics property you now own. Profit-based earnouts invite disputes about costs, so define every cost line if you use one. - The period and checkpoints. Our rule of thumb for small online deals is 6 to 12 months, measured monthly or quarterly, with a payment at each checkpoint rather than one cliff at the end. - The formula. Say what is paid at target, below target and above it. A sliding scale, for example paying in proportion between a floor and the target, avoids an all-or-nothing fight over a few dollars. - A cap. Set a maximum total so the price cannot run away if the business grows because of your own work. - What you may change. Pricing, ad spend, the product and moving to new hosting can all move the metric. List what you can change freely and how changes are treated. - Access for the seller. Give read-only reports at each checkpoint, so the seller does not need to ask for proof. - Where the money sits. If you can, put the earnout funds in escrow at closing, released by the agreed formula. - What ends it early. Say what happens if you sell the business, shut it down or the seller breaks the non-compete; see non-compete terms (https://firstpassmemo.com/answers/non-compete-terms-when-buying-a-website/). Put these terms in the LOI and the purchase agreement, not in a side email; see what to include in an LOI (https://firstpassmemo.com/answers/what-to-include-in-an-loi-when-buying-a-website/) and the asset purchase agreement checklist (https://firstpassmemo.com/answers/asset-purchase-agreement-checklist-for-buying-a-website/). This page is not legal or tax advice; have a lawyer review the wording. ## What are the red flags? - A seller who will accept only a profit-based earnout but will not agree how costs are counted. - A target set above the business's own trailing 12-month average, so you pay extra for growth the seller has not shown. - No cap, or an earnout that runs for years. - A seller who refuses any earnout on a listing with a recent spike. That tells you how much confidence they have in the numbers. ## What does a composite earnout look like? This is a composite example, not a real deal. A small SaaS is listed at $60,000 on revenue of $2,500 a month, but $900 of that came from new customers in the last three months. The buyer offers $45,000 at closing and up to $15,000 as an earnout: $5,000 at each of months 4, 8 and 12, paid in full if Stripe revenue collected over the previous four months averages at least $2,400 a month, nothing below $2,000, and in proportion between the two. The buyer may raise prices for new customers only. The $15,000 sits in escrow. If revenue holds, the seller gets the full ask; if the recent customers leave, the buyer has paid for the business that was there before the spike. Run the listing through the free red-flag checker (https://firstpassmemo.com/checker/) first; its flags show which risks an earnout should cover. The seller financing calculator (https://firstpassmemo.com/tools/seller-financing-calculator/) helps you compare an earnout with a seller note. ## Frequently asked questions ### Is an earnout better than seller financing for the buyer? Usually, when the risk is that revenue will fall. With a seller note you owe the money even if the business shrinks; with an earnout you pay only if agreed targets are met. Sellers know this, so they often ask for a higher total in return. ### Should the earnout be based on revenue or profit? For small online deals, revenue collected is easier to measure and harder to argue about, because the buyer controls the costs after closing. If you agree to a profit target, write down every cost that counts. ### What if the seller says they cannot wait for the money? Offer a shorter period with more checkpoints, or a smaller earnout with a slightly higher closing payment. If the seller rejects any deferred payment on a listing with a short or spiky history, treat that as information about the numbers. ## Sources - FirstPass Memo, red-flag checker rules (https://firstpassmemo.com/flags/), our own rules, published as /rules.json - FirstPass Memo, seller question bank, October 2026 (general checklist) (https://firstpassmemo.com/get/seller-questions-general), our own questions - FirstPass Memo, free buyer calculators (https://firstpassmemo.com/tools/), our own calculators; the formulas are on each page ## Related - Free red-flag checker (https://firstpassmemo.com/checker/) - How seller financing works (https://firstpassmemo.com/answers/how-does-seller-financing-work-when-buying-a-website/) - How escrow works when buying a website (https://firstpassmemo.com/answers/how-does-escrow-work-when-buying-a-website/) - What to include in an LOI (https://firstpassmemo.com/answers/what-to-include-in-an-loi-when-buying-a-website/) - Asset purchase agreement checklist (https://firstpassmemo.com/answers/asset-purchase-agreement-checklist-for-buying-a-website/) - How to check customer concentration (https://firstpassmemo.com/answers/how-to-check-customer-concentration-before-buying-a-website/) - Seller financing calculator (https://firstpassmemo.com/tools/seller-financing-calculator/) - Red flag: revenue concentrated in a recent spike (https://firstpassmemo.com/flags/revenue-concentrated-in-a-recent-spike/) - Glossary of listing terms (https://firstpassmemo.com/glossary/) - More questions buyers ask (https://firstpassmemo.com/answers/) Composite examples are invented and labelled. Figures from other sites are quoted with a link and the date we read them; FirstPass figures are asking prices and seller-stated profit, not sale prices. Informational screening only, not investment, legal or tax advice. ## Looking at a specific listing? Get a full memo — $79, pay after delivery. Paste the link; your memo arrives within 24 hours (Mon–Fri). $79, pay after delivery: we send the memo first, then a payment link. Human quick reviews cost $199–$390. --- FirstPass Memo is informational screening, not investment, legal, tax, accounting or valuation advice, and not an audit. Seller figures are not independently verified. HTML version: https://firstpassmemo.com/answers/earnout-terms-when-buying-a-website/