SOP #53 — Earn-Out Structure That Bridged a $90k Valuation Gap

SOP #53 — Earn-Out Structure That Bridged a $90k Valuation Gap

Seller wanted $400k on a recent traffic spike. We saw $310k of proven value. The earn-out closed it:

1. Pay for proven performance now — $310k at close on trailing-12-month average.
2. Structure the disputed $90k as an earn-out — paid only if the new traffic level holds for 6 months.
3. Define the metric precisely — 'average monthly net profit over months 4-6 post-close exceeds $X' — auditable, not vibes.
4. Cap the earn-out and set a clear payment date.

Outcome: the spike was a single viral post. Profit reverted to baseline by month 3. The earn-out never triggered. We paid $310k for a $310k asset instead of $400k for a temporary blip. Saved $90k by refusing to pay for unproven revenue.

Save this — run it every deal.