Earnout Scenarios: Payment Shape, Threshold and Cap

Method and interpretation

This tool applies an entered formula to an independently defined eligible metric. It does not derive the metric, interpret a contract or estimate a likely payment. All values are USD; eligible metrics may be negative. Use measurement start ≤ measurement end ≤ assumed payment date.

Three supported formulas

Incremental payment = min(cap, max(0, eligible metric − threshold) × coefficient). Pro-rata payment = min(cap, max(0, (metric − threshold) ÷ (full-payment metric − threshold)) × cap). The full-payment metric must exceed threshold. A cliff pays cap when metric ≥ threshold for inclusive treatment or metric > threshold for strict treatment; otherwise it pays zero. Cap and coefficient are nonnegative. A zero cap or zero incremental coefficient produces zero payment.

The graph plots the chosen formula and the three scenarios. A cliff is a step, not a gradual slope. Exact equality is stated in the result and scenario table. A graph range may omit a distant incremental cap breakpoint; its value is displayed separately when representable. The curve export records sampled formula values, not a probability distribution.

Worked example

Threshold $500,000; cap $200,000; incremental coefficient 2. Downside $450,000 pays $0; central $550,000 pays $100,000; upside $650,000 pays $200,000. Full payment begins at $600,000. The exact threshold pays $0. For the period ending December 31, 2027 and payment April 30, 2028, the date gap is 121 calendar days.

Boundaries and exclusions

Metric inputs range from −$1 trillion to $1 trillion; nonnegative payment inputs up to $1 trillion. Dates range from 1900–2200. Missing/nonfinite fields, reversed dates, unordered cases and invalid pro-rata boundaries are rejected. Inactive formula fields are ignored. Monetary rounding is for display; formulas use unrounded values.

There is no probability weighting, present value, tax, security, collection risk, financing schedule, legal entitlement or maximum sale valuation. A cap is not expected proceeds. Actual accounting definitions, control, reporting, objection and dispute terms belong in the reviewed agreement. A September 2026 filed agreement illustrates the kinds of provisions to inspect, in a cross-industry Italian transaction with redactions. It is not a local benchmark or recommended contract.

Primary references

This numerical framework is explained in the companion guide. Contract, accounting and transfer conclusions require the actual evidence and appropriate review.