Lehman Success Fee Calculator
How It Works
This calculator uses a Lehman-style pricing model, where the fee percentage decreases as the deal size grows. This approach recognizes that every transaction involves a baseline amount of work regardless of size, while allowing larger deals to benefit from economies of scale.
$2M
Total Transaction Value
4.50%
Blended Rate
$90K
Total Success Fee
Fee Calculation
| Tier | Amount | Rate | Fee |
|---|---|---|---|
| $0-1M | $1M | 5% | $50K |
| $1-2M | $1M | 4% | $40K |
| $2-3M | $0 | 3% | $0 |
| $3-4M | $0 | 2% | $0 |
| $4M+ | $0 | 1% | $0 |
| Totals | $2M | 4.50% | $90K |
Understanding M&A Success Fees and the Lehman Formula
When selling a business through a broker or M&A advisor, you typically owe a success fee at closing, sometimes called a transaction fee or commission. It is calculated as a percentage of the final sale price. The Lehman formula is the most widely used framework for structuring these fees. It dates back to the 1960s, when Lehman Brothers introduced a standardized approach to investment banking commissions for mergers and acquisitions.
How the Lehman Formula Works
The standard Lehman formula applies a tiered structure that decreases with deal size: 5% on the first million dollars, 4% on the second, 3% on the third, 2% on the fourth, and 1% on any amount above $4 million. Because the rate drops with each tier, the blended (average) percentage falls as the transaction grows. On a $3 million deal, for example, the fees add up to $120,000, which equals a 4.0% blended rate. A $10 million deal produces a $200,000 fee, or 2.0% blended.
Double Lehman and Modified Versions
The original formula was built around large investment banking deals. For smaller business sales, typically those under $5 million, brokers often switch to the Double Lehman formula, which doubles every tier: 10% on the first million, 8% on the second, and so on. A $2 million transaction under Double Lehman generates a $180,000 fee (9.0% blended), versus $90,000 (4.5% blended) under the standard version. Other modified versions exist as well. Some brokers charge a flat rate, typically 5–10% for deals under $5 million, while others set a minimum fee of $50,000 to $100,000 regardless of what the formula produces.
What Brokers and Advisors Actually Charge
In practice, success fees for businesses selling under $5 million generally fall in the 8% to 12% range. Deals in the $5 million to $25 million range typically carry fees of 4% to 8%, and larger transactions above $25 million usually land between 1% and 3%. Many brokers also charge an upfront retainer of $5,000 to $25,000, and some add costs for marketing, travel, or administrative work. On a $2 million sale, total broker costs can reach $150,000 to $250,000, all of which reduces your net proceeds.
How Dealflow Is Different
Dealflow connects business owners directly with vetted buyers, M&A advisors, and investors in the lower middle market. The platform gives you the tools and relationships to manage your own deal process without paying 5% to 10% of your transaction in fees. If you choose to work with an advisor separately, that option remains open, but Dealflow gives you alternatives.
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Frequently Asked Questions
The Lehman formula is a tiered fee structure created in the 1960s by Lehman Brothers to standardize M&A advisory fees. Under the original version, fees are 5% on the first $1 million of the transaction, 4% on the second, 3% on the third, 2% on the fourth, and 1% on everything above $4 million. It remains the most commonly referenced model for structuring success fees in business sales.
A success fee is a percentage of the total transaction value, meaning the final sale price. Most brokers use a tiered structure like the Lehman formula, where the percentage decreases as the deal grows. On a $3 million deal under the standard formula, the fee would be $50,000 plus $40,000 plus $30,000, totaling $120,000 at a 4.0% blended rate.
The Double Lehman formula doubles each percentage in the original structure: 10% on the first million, 8% on the second, 6% on the third, 4% on the fourth, and 2% above $4 million. Brokers working on smaller transactions often use this version because the standard formula may not produce enough fee income to justify the time and effort involved in closing a deal.
Business broker fees vary depending on the size of the transaction. For smaller businesses selling under $5 million, success fees typically run between 8% and 12% of the sale price. In the middle market, where deals fall between $5 million and $25 million, fees generally range from 4% to 8%. For larger transactions above $25 million, fees drop significantly, usually landing between 1% and 3%. Beyond the success fee itself, many brokers charge an upfront retainer when you first engage them, commonly between $5,000 and $25,000. Some also add fees for marketing, due diligence support, travel, or administrative costs. On a $2 million business sale, the combined total of retainer and success fee can easily reach $150,000 to $250,000, all of which reduces what you actually walk away with at closing.
Yes. Percentages, minimum fees, retainers, and payment timing are all open to negotiation, and brokers generally expect it. Your leverage increases with deal size, how organized your financials are, and whether you are willing to grant exclusivity. Before signing, always confirm what counts as "transaction value" for fee purposes, since some brokers include earnouts, consulting agreements, or real estate in that figure.
A retainer is a fixed upfront payment made when you hire a broker, typically ranging from $5,000 to $25,000, and it is owed whether or not the deal closes. A success fee is only collected when the transaction closes. Many brokers charge both. Some apply the retainer as a credit toward the success fee at closing, while others keep them separate. Always clarify this before signing an engagement letter.
Success fees are generally due at closing and come out of the transaction proceeds before you receive your net amount. If the deal includes an earnout, where part of the price is paid over time based on future performance, some brokers collect their percentage as those payments arrive, while others negotiate to receive the full fee upfront. This is an important point to settle before signing any agreement.