Add-ons are thought to compose a fair portion of the fee, while the Reds have also negotiated to include a sell-on fee percentage and a buy-back clause - active for the next two seasons - for the defender.
The 22-year-old agreed terms earlier in the week and departed the club's squad to board an overnight flight back to the UK to undergo a medical on the South Coast, which he successfully completed.
The Australian international put pen-to-paper on a four-year deal with the Cherries and becomes their sixth summer signing, following £15 million winger Jordon Ibe in moving from Anfield.
Although add-ons could make up as much as £3 million of the fee, according to reports from outlets close to Bournemouth, it still represent a sizeable return for a player who almost walked out on a free last summer.
Although Liverpool would have been due a compensation fee for Smith, had he found a new club, which is believed to be what put the likes of Barnsley off, although he enjoyed a trial there in September.
Although his contract ran out, and Smith's representatives urged him to look for more minutes and better wages elsewhere, Liverpool retained his registration in order to ensure they would command a decent fee.
Reds' clear-out continues with Smith the eighth exit
Their hard-line stance paid off, scaring away any potential suitors who feared having to pay over-the-odds at a tribunal, with Smith eventually reversing his decision and signing an extension on Merseyside in November.
The Academy graduate, who made his debut for the club back in December 2013, went on to make 10 appearances in all competitions after his U-turn, scoring one goal.
Taking to Instagram after completing his move, Smith thanked everyone at Liverpool including "the players, coaches and the fans" for "the support and help" over his eight years at the club.
He called it an "incredible experience" which he says he will "forever appreciate" before signing off with "YNWA."
Looking forward, he called himself "very pleased" to have signed for Bournemouth and said he's both "looking forward to the opportunity" and "can't wait to get started" at the Vitality Stadium.
His departure leaves Liverpool light on depth at full-back, with Jon Flanagan reportedly soon to have a medical with Burnley ahead of a season-long loan.
That would leave just Connor Randall as back-up to Nathaniel Clyne at right-back with no obvious deputy to Alberto Moreno on the left, though Ragnar Klavan can play there in an emergency situation.
Versatile defender Joe Gomez can also play on the left but is set to miss the start of the season with an Achilles problem after spending the last 10 months out with a knee ligament injury.
No targets have yet been named in the press, with Klopp's long-time first-choice Ben Chilwell set to sign a new deal with Leicester City. The 19-year-old reportedly showed no signs of wanting to sign for the club, prompting them to drop their interest.