Lehman Formula Explained: What Straight, Double, Modified and Reverse Lehman Broker Fees Cost

Short answer: the Lehman formula is a tiered success fee that charges a falling percentage on each additional slice of the sale price. Straight Lehman is 5% of the first $1 million, 4% of the second, 3% of the third, 2% of the fourth and 1% above $4 million. Double Lehman doubles every tier and is now the normal structure on deals between roughly $1 million and $10 million. On a $3.5 million sale, Straight Lehman costs $130,000 and a flat 10% costs $350,000, so the formula named in your engagement letter matters more than any single percentage in it. Last updated August 2026. Educational only, not legal or financial advice.

What is the Lehman formula?

It is a sliding commission scale, invented at Lehman Brothers in the 1960s, that pays an intermediary a smaller percentage on each additional million dollars of sale price. The logic is that the work of selling a $5 million company is not five times the work of selling a $1 million company, so the rate should taper. It became the default way to price sell-side M&A work and it is still the structure most business brokers, M&A advisors and investment bankers start from.

The original scale, now called Straight Lehman, is easy to memorize: 5, 4, 3, 2, 1. Five percent of the first million, four percent of the second, three percent of the third, two percent of the fourth, one percent of everything above four million. It is applied cumulatively, not as a single rate on the whole price, which is the part people most often get wrong.

How do you calculate the Lehman formula?

You slice the sale price into million-dollar bands and apply the rate for each band, then add them up. Take a $3,500,000 sale under Straight Lehman. The first million costs 5%, which is $50,000. The second million costs 4%, which is $40,000. The third million costs 3%, which is $30,000. The remaining $500,000 falls in the fourth band at 2%, which is $10,000. Total $130,000, an effective rate of 3.71%.

Run the same sale through the other common structures and the answer changes dramatically:

Structure on a $3,500,000 sale	Tier percentages	Fee	Effective rate
Straight Lehman	5-4-3-2-1	$130,000	3.71%
Double Lehman	10-8-6-4-2	$260,000	7.43%
Modified Lehman, heavy small-deal variant	12-10-8-6-4-2	$330,000	9.43%
Flat success fee	10% of everything	$350,000	10.00%

Same broker, same business, same closing date. The gap between the cheapest and the dearest structure is $220,000. That is why reading the formula before you read the rate is the single highest-value ten minutes in a broker negotiation.

What is the Double Lehman formula?

Double Lehman takes each Straight Lehman tier and doubles it: 10% of the first million, 8% of the second, 6% of the third, 4% of the fourth and 2% above four million. It exists because Straight Lehman was designed for an era of larger deals, and 5% of a $600,000 business does not cover the cost of running a proper sale process. Double Lehman is now the working default for lower-middle-market engagements, roughly the $1 million to $10 million range, and it is what most online-business sellers will actually be offered. Below $1 million it produces the same number as a flat 10%, which is one reason buyers hunting for margin start with businesses for sale by owner.

Below $1 million, Double Lehman and a flat 10% produce exactly the same number, because you never leave the first tier. That is worth knowing: if your business is going to sell for $700,000, arguing about Double Lehman versus a flat 10% is arguing about nothing. The structures only diverge once the price crosses the first million.

What is a Modified Lehman formula?

Modified Lehman is a catch-all term for any custom variant of the scale. Common ones include 12-10-8-6-4-2 for engagements weighted toward sub-$1 million deals, 8-6-4-2 for advisors who only take deals starting above $2 million, and 10-8-6-4-2-1 with a sixth tier for deals expected to clear $10 million. There is no standard, so "modified Lehman" in a proposal tells you nothing until you see the actual percentages written out.

Two details in a modified scale change the total more than the headline first-tier rate. The first is the tier width: a scale that steps every $1 million is very different from one that steps every $5 million. The second is the floor rate and the point at which it kicks in, because on a large deal most of the price sits in that final band paying the lowest percentage.

What is a reverse Lehman fee?

A reverse Lehman runs the scale the other way, so the percentage rises as the price climbs instead of falling. The intent is incentive alignment: the broker earns disproportionately more for every dollar above a target price, so pushing for a better outcome is worth their effort. You most often see it applied above a threshold, with a normal rate up to an agreed number and a higher rate on the excess.

Be careful with the term. It is used inconsistently across the industry, and some firms use "reverse Lehman" to describe an ordinary declining scale quoted backwards. Website Closers names reverse Lehman among the structures it uses without publishing the tiers, which is typical. Never accept the label. Ask for the actual percentages and the threshold in writing, and make the broker run the numbers at your expected sale price.

What commission do business brokers charge?

For small online businesses, most sell-side engagements land between 8% and 12%, with a flat 10% success fee as the common headline. Once deals reach the lower middle market the Lehman scales take over and the effective rate falls with size. Website Closers publishes a resources article citing 5% to 10% for deals under $100 million, around 6% at $5 million and 2% to 3% at $50 million, which matches what the scales produce.

Marketplaces price differently, and if your business is small the comparison usually favors them. It is worth putting real numbers side by side before assuming a broker is the right route:

Venue	How the fee works	Rate published?
Flippa	Upfront listing fee by band plus a 10% success fee, escrow billed separately	Yes
Empire Flippers	$10,000 flat below $66,666.66, then 15% to $700,000, 8% to $5M, 2.5% above	Yes
Acquire.com	Monthly listing fee of $25 to $100 plus a closing fee of 8%, 7% or 6% by band	Yes
Full-service brokers	Lehman-style scale or flat success fee, often with a minimum and a tail	Usually not

Notice the pattern. Marketplaces publish, brokers negotiate. Neither is automatically better, but only one of them lets you compare before you talk to a salesperson. Our own listing and success fee schedule is published for the same reason.

What is a minimum success fee?

It is a dollar floor the intermediary collects no matter what the percentage formula produces. If Straight Lehman computes $40,000 on your sale but the engagement letter sets a $75,000 minimum, you pay $75,000, and your effective rate is nearly double what the scale implied. Almost every sell-side agreement contains one, and it is the clause that most often makes a "cheap" formula expensive.

The minimum matters most at the bottom of a broker's range. A firm whose minimum fee is $150,000 is not really available to a business selling at $1.2 million, whatever their scale says, because the floor turns a nominal 5% into 12.5%. Ask for the minimum in the first conversation, not the fifth.

What is a tail clause and why does it matter?

A tail keeps the success fee payable after the engagement ends, if you sell to a buyer the broker introduced during it. Twelve to twenty-four months is typical, and it is one of the few parts of a fee agreement that can still bite a seller who has already paid nothing to the broker. The clause is reasonable in principle, since a broker should not lose their fee because a buyer waited out the contract, but the drafting varies enormously.

Two things to check. First, the tail should apply to a named, written list of introduced buyers delivered when the engagement ends, not to anyone who ever touched the deal. Second, it should not survive if you terminate for the broker's non-performance. Both are negotiable and neither will be offered. The same care applies to the exclusivity period and to what happens to the fee if a deal signs but never closes, which is worth reading alongside what actually binds in a letter of intent.

How do you negotiate a Lehman fee?

Leverage comes from being an attractive, well-prepared seller, so do the preparation first. Clean books, verified revenue metrics and a documented growth story shorten the process, and brokers price shorter processes more cheaply. Getting an independent valuation before you sign is worth the effort for a second reason: every term in the fee schedule is keyed to sale price, so you cannot judge whether a scale is expensive until you know roughly where your business will land.

Then push on four things, in this order of value. The formula, because that is where the $220,000 sat in the example above. The minimum fee, because it silently overrides the formula on smaller deals. The tail length and its definition. The exclusivity period, which determines how long you are locked in if the process stalls. Rate percentages are the last thing to argue about, not the first.

One more point that sellers underuse: ask the broker to model their own fee at three sale prices, a pessimistic one, a likely one and an optimistic one, and to put that table in the engagement letter as an illustrative schedule. A firm confident in its pricing will do it. A firm that will not is telling you something.

Does the Lehman formula apply to SaaS businesses?

Yes, wherever a broker or M&A advisor is running the sale. SaaS does not get its own fee convention. What changes with SaaS is the route: a large share of software businesses under a few million dollars sell through marketplaces rather than brokers, and marketplaces use published flat or banded rates instead of Lehman scales. So the formula becomes relevant mostly above the point where full-service representation is worth paying for.

Where that point sits depends on the business more than the price. A clean, single-product SaaS with verified metrics and a tidy cap table can often sell itself on a marketplace at $2 million. A business with messy revenue recognition, customer concentration or a complicated ownership history benefits from a broker who can manage the process, and paying a Lehman scale for that is rational. We break the trade-off down in more detail in our guide to what it actually costs to sell a SaaS business.

The short version

The Lehman formula is a tapering scale, not a single rate, and it is applied band by band. Straight Lehman is 5-4-3-2-1, Double Lehman is 10-8-6-4-2 and is the realistic default in the lower middle market, and anything called modified is whatever the contract says it is. The percentages are the visible part of the cost. The minimum fee, the tail and the exclusivity period are the parts that decide what you actually pay, and they are the parts nobody publishes.

If you are weighing a broker against a marketplace, the honest test is whether the extra fee buys you a better process or just a longer contract. Selling with verified metrics at a published rate removes the negotiation entirely, which suits some sellers and not others. Either way, get the formula, the floor and the tail in writing before you sign.