Earn-out
In website sales, an earn-out is a provision in the website purchase agreement which details future compensation to the website seller if the website achieves certain financial (such as sales or profits) or non-financial (such as subscriptions) goals.
An earn-out is ideal if the seller continues to be involved in the management of the website business after the sale. The seller may have already received a down-payment for the website sale and may be less motivated to work as hard as before for the new owners. An earn-out gives the seller the incentive to continue running the business at its optimal level. If the website does well in the future, the seller receives additional compensation.
An earn-out is also a good option if the website buyer is unsure about the website’s ability to continue to perform well in the future. Paying an earn-out only after the business has performed well in the future reduces the buyer’s risk.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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