Lehman Success Fee Calculator
How it works
We use a Lehman-style pricing structure, with decreasing percentage fees as deal size increases. This reflects the reality that every transaction, regardless of size, carries a baseline level of work while enabling larger deals to benefit from greater efficiency.
$4.4M
3.27%
Blended Rate$144K
Fee Calculation
| Tier | Amount | Rate | Fee |
|---|---|---|---|
| $0-1M | $1M | 5% | $50K |
| $1-2M | $1M | 4% | $40K |
| $2-3M | $1M | 3% | $30K |
| $3-4M | $1M | 2% | $20K |
| $4M+ | $400K | 1% | $4K |
| Totals | $4.4M | 3.27% | $144K |
Understanding M&A Success Fees and the Lehman Formula
When you sell a business through a broker or M&A advisor, you typically pay a success fee (also called a transaction fee or commission) calculated as a percentage of the final sale price. The most common framework for calculating this fee is the Lehman formula, which dates back to the 1960s when Lehman Brothers standardized investment banking fees for mergers and acquisitions.
How the Lehman Formula Works
The original Lehman formula uses a tiered percentage structure: 5% on the first $1 million of transaction value, 4% on the second $1 million, 3% on the third, 2% on the fourth, and 1% on everything above $4 million. The tiers mean your blended rate decreases as the deal size increases.
For example, on a $3 million transaction, the fee breaks down to $50,000 + $40,000 + $30,000 = $120,000, or a 4.0% blended rate. On a $10 million transaction, the total fee would be $140,000 (the first $4 million at the tiered rates) plus $60,000 (1% on the remaining $6 million) = $200,000, or a 2.0% blended rate.
Double Lehman and Modified Lehman
The original Lehman formula was designed for large investment banking transactions. For smaller business sales (under $5 million), brokers often use the Double Lehman, which doubles each tier: 10% on the first $1 million, 8% on the second, and so on. On a $2 million deal, Double Lehman produces a fee of $180,000 (9.0% blended) compared to $90,000 (4.5% blended) under the original formula.
Modified Lehman variations are also common. Some brokers use a flat percentage (typically 5-10% for deals under $5 million). Others set a minimum fee ($50,000 to $100,000) regardless of the formula result. The variation you encounter depends on the broker, the deal size, and the market.
What Brokers and Advisors Actually Charge
In practice, success fees for businesses selling under $5 million typically range from 8-12% of the transaction value. For businesses in the $5-25 million range, fees fall between 4-8%. Larger deals ($25 million and above) command lower percentages, usually 1-3%.
Many brokers also charge an upfront retainer ($5,000 to $25,000) and may add other costs: marketing fees, travel expenses, or administrative charges. On a $2 million business sale, total broker costs (retainer + success fee) can run $150,000 to $250,000. That's money that comes directly out of your proceeds.
How Rejigg Is Different
Rejigg is free for sellers. No listing fees, no retainers, no success fees. Buyers pay a subscription to access the platform and connect with you directly. You keep 100% of your sale price. If you decide to work with a broker or advisor separately, that's your call, but Rejigg gives you the tools and connections to sell on your own terms without paying 5-10% of your life's work in fees.
Wondering what your business is worth? Try our free business valuation calculator. If you're exploring SBA financing for an acquisition, our SBA loan calculator can help you estimate your maximum offer price.
Frequently Asked Questions
What is the Lehman formula?
The Lehman formula is a tiered fee structure that originated in the 1960s when Lehman Brothers standardized how investment banks charged for M&A advisory work. The original formula is: 5% on the first $1 million of transaction value, 4% on the second $1 million, 3% on the third, 2% on the fourth, and 1% on everything above $4 million. It's still the most widely referenced framework for calculating success fees in business sales.
How do you calculate a success fee?
A success fee is calculated as a percentage of the total transaction value (the final sale price of the business). Most brokers and advisors use a tiered structure like the Lehman formula, where the percentage decreases as the deal size increases. For example, on a $3 million deal using the standard Lehman formula, the fee would be $50,000 (5% of $1M) + $40,000 (4% of $1M) + $30,000 (3% of $1M) = $120,000, or 4.0% blended.
What is the Double Lehman formula?
The Double Lehman formula doubles the percentages from the original Lehman: 10% on the first $1 million, 8% on the second, 6% on the third, 4% on the fourth, and 2% on everything above $4 million. Brokers who work on smaller deals (businesses selling for under $5 million) frequently use Double Lehman because the original formula doesn't generate enough fee income to justify the 6-12 months of work involved in closing a transaction.
How much do business brokers charge in success fees?
For businesses selling for under $5 million, broker success fees typically range from 8-12% of the transaction value. For businesses in the $5-25 million range, fees usually fall between 4-8%. Larger deals ($25 million and above) often use something close to the original Lehman formula, resulting in blended rates of 1-3%. Many brokers also charge an upfront retainer ($5,000-$25,000) in addition to the success fee.
Are success fees negotiable?
Yes. Success fee percentages, minimum fees, retainers, and payment timing are all negotiable. Brokers expect negotiation. Points of leverage include deal size (larger deals command lower percentages), how sale-ready your business is (clean financials and clear documentation reduce their workload), and whether you're willing to grant exclusivity. Always clarify what counts as the "transaction value" for fee calculation, since some brokers include earnouts, consulting agreements, or real estate.
Do I pay a success fee on Rejigg?
No. Rejigg is free for sellers. There are no listing fees, no retainers, and no success fees. Rejigg's model is different from traditional brokers: buyers pay a subscription to access the platform and connect with sellers. This means you keep 100% of your sale price. If you do choose to work with a broker or advisor separately, any fees would be between you and them.
What's the difference between a success fee and a retainer?
A retainer is a fixed upfront payment you make when you engage a broker or advisor, typically $5,000 to $25,000. You pay this regardless of whether the deal closes. A success fee is only paid when the transaction closes. Many brokers charge both: a retainer to start working and a success fee at closing. Some brokers credit the retainer toward the success fee, and some don't. Always ask.
When is the success fee paid?
Success fees are due at closing, typically paid from the transaction proceeds. The fee is calculated on the total transaction value and deducted before the seller receives their net proceeds. If a deal includes an earnout (a portion of the price paid over time based on future performance), brokers may collect their fee percentage on the earnout payments as they come in, or they may negotiate to receive their full fee upfront on the total projected value. Clarify this before signing an engagement letter.
