Business broker fees can cost you 10% to 20% of your total sale price. Did you know that?
Your $100,000 business sale could lead to broker commissions between $10,000 and $20,000. But these fees change substantially based on your company’s size and revenue. Businesses with revenue under $1 million usually pay commission rates of 8% to 10%. Larger companies often use detailed formulas like the Double Lehman Scale – 10% on the first million, 8% on the second, and so on.
These costs might look high, but knowing broker charges upfront can save you thousands. You should be extra careful with firms that just need large upfront fees to value or consult, especially when you have a business making less than $25 million in revenue.
The standard broker contract runs for 6-12 months minimum. They structure payments as success fees, monthly retainers, or both. About 50% of brokers use the Lehman Formula (also called the 5-4-3-2-1 structure) to calculate their success fees [-4].
This piece breaks down broker commission rates and fee structures. You’ll learn what to expect when selling your business.
Key Takeaways
Understanding business broker fees before selling can save you thousands and help you make informed decisions about your transaction.
• Business broker fees typically range from 8-12% for businesses under $1M, with larger companies using formulas like Double Lehman (10% first million, 8% second, etc.)
• Most brokers use success-based fees paid only at closing, though some charge monthly retainers ($500-$5,000) or upfront engagement fees ($1,000-$50,000)
• Broker fees are negotiable—64% of clients who attempted to negotiate successfully reduced their costs by simply asking during initial meetings
• The Double Lehman Formula is most common for mid-sized businesses: 10%-8%-6%-4%-2% on successive millions, resulting in lower effective rates than flat percentages
• Brokers provide valuable services including business valuation, confidential marketing, buyer qualification, and negotiation management that often justify their fees through higher sale prices
Choose your broker based on industry experience and proven results, not just fee structure—a skilled broker charging slightly more can deliver significantly better outcomes for your business sale.
What Does a Business Broker Do?
Business brokers are vital intermediaries in the business sale process. They bring specialized expertise that most business owners don’t have. Their role explains why broker fees typically range from 8-10% for businesses under $1 million in revenue.
Helps value and market your business
Business brokers start with a detailed business valuation. This forms the foundation of any successful sale. They use several methods to assess your company’s worth:
- Financial analysis of past performance and future projections
- Market comparisons with similar businesses recently sold
- Asset evaluation of both tangible and intangible property
This methodical approach will give a fair price that’s neither too low nor too high. Your business becomes more attractive to serious buyers this way. Brokers then create effective marketing strategies tailored to your business. They craft compelling marketing materials like one-page “teasers” that showcase your business without revealing its identity. Qualified prospects later receive more detailed confidential information memorandums.
Brokers protect sensitive information until they identify appropriate buyers. This confidentiality shield protects your relationships with employees, clients, and suppliers during the sale.
Connects you with qualified buyers
Business brokers excel at finding qualified buyers. They utilize extensive networks of investors, private equity firms, and businesses looking for acquisition opportunities. These connections substantially expand your potential buyer pool beyond what most owners could find on their own.
The broker screens potential buyers to verify their financial capability and genuine interest. This vital step removes time-wasters. You’ll only meet serious, financially qualified prospects. The screening process requires prospective buyers to:
- Sign confidentiality agreements before receiving detailed information
- Provide proof of financial capacity
- Demonstrate relevant background and skills
Manages negotiations and closing
Your business broker takes charge of the entire negotiation process when qualified buyers show interest. These professionals know how to structure deals that maximize your financial outcome. They handle every aspect of negotiations including:
- Price discussions and counteroffers
- Payment structure arrangements
- Addressing contingencies and potential deal obstacles
Brokers work alongside legal, financial, and tax professionals during closing. They make sure all documentation is properly prepared, from contracts to disclosure forms and compliance paperwork. This attention to detail prevents future disputes and ensures legal compliance.
Your broker acts as a buffer between you and potential buyers throughout the sale. You can focus on running your business until the sale concludes. This detailed management of the transaction process justifies business broker fees. They bring expertise that substantially increases your chances of selling your business for maximum value.
Types of Business Broker Fees
Business broker fees change based on your business size, how complex the sale is, and the broker’s business model. You need to understand these fee arrangements to make smart decisions when choosing a broker to sell your business.
Success fees (commission-based)
Most business brokers get paid through success fees, which they receive only after your business sells. These fees—also known as commissions—usually range from 10% to 15% of the final sale price for businesses worth between $100,000 and $1 million. Brokers often charge a flat fee of $10,000 or $15,000 for businesses selling below $100,000, whatever the final price.
Commission percentages typically drop as businesses get bigger. Brokers might charge 10% on the first million and 8% on the rest for companies worth over $1 million. They often use one of these sliding scale formulas:
- Double Lehman Formula: 10% of first million, 8% of second million, 6% of third million, 4% of fourth million, and 2% thereafter
- Modern Lehman Formula: Starts at 10% for the first million and drops more gradually (9%, 8%, 7%, etc.)
So, a broker would earn about $300,000 in fees on a $5 million business sale using the Double Lehman formula.
Monthly retainers
Monthly retainer fees give brokers steady income throughout the selling process, whether your business sells or not. These fees typically run from $500 to $5,000 monthly for businesses in the seven-figure range. Monthly retainers show the seller’s dedication and help cover the broker’s ongoing marketing and administrative costs.
About 36% of brokers use monthly or milestone-based fee structures, though success-fee-only deals are more common. Brokers usually lower their success fee percentage with monthly retainers since they’ve already received some upfront payment.
Upfront or engagement fees
Brokers collect upfront fees—also called engagement fees, listing fees, or work fees—once at the start of your relationship. Industry surveys show that 35% of brokers ask for a fixed upfront fee, which they later subtract from the final success fee.
These fees vary widely:
- Small businesses: $1,000-$25,000
- Larger businesses: $25,000-$50,000+
Sellers debate the value of upfront fees. Supporters say these fees ensure broker commitment and pay for initial costs like business valuation and marketing materials. Critics point out that brokers who charge big upfront fees might list any business, even those unlikely to sell.
Valuation and marketing costs
Some brokers charge extra for specific services like business valuation and marketing. A simple verbal opinion might cost $1,000, while complete written valuations for mid-sized companies can run $5,000-$10,000.
Marketing expenses can include creating sales materials, listing on business-for-sale websites, and targeted advertising. Some brokers include these costs in upfront fees or monthly retainers, while others list them separately.
Note that you should understand what services are included, what extra costs might come up, and when payments are due. Almost all broker fees can be negotiated, but your bargaining power depends on your business size, how attractive it is to buyers, and local market conditions.
How Fees Vary by Business Size
Business size determines broker fees. Brokers split businesses into revenue segments, and each segment has its own fee structure that matches how much work it takes to sell companies of different sizes.
Main Street businesses: under $1M revenue
Main Street businesses make up the biggest group of companies sold through brokers and come with the highest percentage rates. Brokers usually charge between 8% and 12% of the final sale price when a business makes less than $1 million in revenue. These deals might be simpler, but brokers still put in plenty of work to market them and find the right buyers.
To name just one example, a nail salon selling for $700,000 might come with a 12% commission fee, which adds up to $84,000. Small businesses like these work with “Main Street” brokers who don’t ask for upfront or retainer fees.
Lower Middle Market: $1M–$25M
Companies making between $1 million and $25 million fit into the lower middle market, where fee structures get more complex. Brokers at this level either use the Double Lehman Formula or go with a flat commission.
The Double Lehman Formula works like this:
- 10% on the first million
- 8% on the second million
- 6% on the third million
- 4% on the fourth million
- 2% on any remaining amount
Some brokers prefer keeping things simple with a flat 4-6% commission on the total purchase price. A $5 million sale using the Double Lehman formula would earn the broker about $300,000.
Middle Market: over $25M
M&A advisors or investment banks handle businesses making over $25 million, putting them in the middle market segment. These deals involve big money, so the percentage rates drop to between 1% and 4%.
Big deals like these often need monthly retainers between $5,000 and $15,000, paid upfront or in installments. The broker’s total pay stays hefty thanks to the higher sale prices, even with lower percentage rates.
Minimum commission thresholds
Every broker sets minimum commission thresholds whatever the final sale price. These minimums make sure brokers don’t spend too much time selling tiny businesses for pocket change.
Main Street business brokers usually won’t take less than $10,000 to $25,000. A business selling for just $80,000 might still need a $10,000 minimum fee, even though the regular percentage would only be $8,000.
Lower middle market advisors typically want at least $35,000 to $50,000. Middle market firms push these minimums higher—anywhere from $50,000 to $250,000—because bigger deals need more resources and expertise.
How to Calculate Business Broker Fees
Business broker fees can make or break your budget when you sell your business. Let’s break down the exact calculations to help you understand what you’ll need to pay. Your final costs depend on your business’s sale price.
Using the Lehman and Double Lehman formulas
The original Lehman Formula came about many years ago with a 5-4-3-2-1 structure:
- 5% of the first $1 million
- 4% of the second $1 million
- 3% of the third $1 million
- 2% of the fourth $1 million
- 1% of everything above $4 million
Modern brokers now prefer the Double Lehman Formula (or Modern Lehman) because of inflation. This formula doubles the original percentages:
- 10% of the first $1 million
- 8% of the second $1 million
- 6% of the third $1 million
- 4% of the fourth $1 million
- 2% of everything above $4 million
Here’s a practical example: A $5 million business sale would cost you: $100,000 (10% of first million) + $80,000 (8% of second million) + $60,000 (6% of third million) + $40,000 (4% of fourth million) + $20,000 (2% of fifth million) = $300,000 total commission.
The Double Percentage Lehman offers a more gradual decrease:
- 10% of first million
- 9% of second million
- 8% of third million
- 7% of fourth million
- The percentage keeps dropping by 1% until it hits 3% for amounts above $8 million
Flat percentage models
Smaller business brokers often stick to simple flat percentage commissions between 8% and 12% of the total sale price. While this makes calculations easier, larger deals might cost you more.
Let’s look at the numbers: A $5 million business with a flat 10% commission would cost $500,000 in broker fees. The Double Lehman method would only cost $300,000.
Accelerator fee structures
Accelerator structures reward brokers for getting higher prices by increasing their commission rates above certain thresholds.
A typical accelerator structure looks like this:
- 5% for sales under $2 million
- 7% for sales between $2-5 million
- 9% for sales over $5 million
Real-life fee examples
Brokers adjust these formulas based on business size:
A Main Street business worth $700,000 might pay a flat 10% fee, resulting in a $70,000 commission.
For a $3 million lower middle market business:
- Double Lehman costs: $100,000 (10% of first million) + $80,000 (8% of second million) + $60,000 (6% of third million) = $240,000
- Flat 8% also equals: $240,000 (coincidentally the same in this case)
Larger $10 million deals show significant differences:
- Double Lehman: $400,000 commission
- Flat 4%: $400,000 commission
- Flat 10%: $1,000,000 commission (this explains why bigger deals rarely use flat percentages)
Negotiating and Paying Broker Fees
Business owners have substantial room to negotiate broker commissions, unlike many fixed business sales costs. Sellers achieve success by starting a simple conversation about fees.
Can you negotiate broker fees?
Of course—research shows 64% of clients who attempted to negotiate broker fees succeeded in reducing their costs. You have legitimate opportunities to secure better rates since business broker fees aren’t fixed. Your maximum bargaining power exists during your original broker meetings. Your negotiating power diminishes substantially if you wait until after signing an agreement or during the sale process.
Who typically pays the broker?
The business seller pays broker fees in most cases. Brokers split the commission between themselves when buyers and sellers have separate representation. Buyers with their own advisors might negotiate flat fees that range from $5,000 to $25,000 based on deal complexity.
When are fees due?
The sale’s successful conclusion triggers commission-based fee payments. You must pay upfront fees after signing the broker agreement, whether your business sells or not. Monthly retainers need continuous payments throughout the engagement period.
Tips to reduce total cost
Your broker expenses can be minimized by:
- Making comparisons among multiple brokers
- Emphasizing your business’s easy-to-sell aspects
- Creating multiple opportunities through selling and buying
- Picking the right timing—brokers show more flexibility during slow periods
When a Business Broker Is Worth It
Hiring a business broker might feel like a big step and an expensive one. But in many cases, the value they bring to the table more than justifies the cost. If you’re serious about selling your business, a broker can be one of your most important assets.
First and foremost, brokers understand how to position your business to maximize its value. They know what buyers look for, how to highlight your strengths, and how to present financials in a way that builds trust. This often leads to higher offers and better terms than you’d get on your own.
Second, brokers handle the heavy lifting, from marketing the business confidentially to screening buyers and managing negotiations. That saves you time, keeps the process discreet, and allows you to stay focused on running the business while it’s still in your hands.
They also bring deal-making expertise. Selling a business isn’t like selling a car—it involves complex contracts, due diligence, financing, and legal details. An experienced broker knows how to navigate these challenges, protect your interests, and move the deal toward a smooth close.
Even more, brokers often have access to serious, qualified buyers you’d never reach on your own. Their networks, tools, and reputation help ensure your business gets in front of the right people.
Yes, brokers charge a fee but when they help you sell faster, avoid costly mistakes, and get a higher sale price, the return is often well worth it.
If your business is profitable, established, and you want to exit with confidence, hiring a broker isn’t just smart, it’s strategic.
Conclusion
Business owners planning to sell should know how broker fees work. Your business size greatly affects these costs. Main Street businesses usually pay 8-12%, while Lower Middle Market companies use formulas like the Double Lehman. Middle Market businesses can negotiate rates between 1-4%.
Brokers earn their money by providing detailed services. They handle business valuation, confidential marketing, buyer qualification, and the entire negotiation process. These costs might look high at first, but professional help often results in better sale prices and smoother deals.
You should really understand which fee structure fits your needs before signing any agreement. Most sellers find success fees, paid only after completion, the safest option. Monthly retainers or upfront fees might work better based on your specific case.
Note that these fees are often negotiable. About 64% of clients get lower broker costs just by asking. Getting quotes from multiple brokers gives you an edge in fee discussions.
The Lehman Formula and its modern versions are the foundations of larger sales. This approach ensures brokers get fair compensation without taking too much of your business value. Smaller businesses benefit from flat percentage models that offer clarity.
Finding the right broker goes beyond comparing fees. Your decision should equally weigh industry experience, track record, and personal fit. Paying a bit more for an exceptional broker who lands a better sale price is money well spent.
FAQs
Q1. What is the typical commission range for business brokers? Business broker commissions generally range from 8% to 12% of the sale price for smaller businesses. For larger businesses, the percentage often decreases using formulas like the Double Lehman scale.
Q2. How is the Double Lehman Formula applied in broker fees? The Double Lehman Formula calculates fees as 10% of the first million, 8% of the second million, 6% of the third million, 4% of the fourth million, and 2% of any amount above $4 million in the sale price.
Q3. Can business broker fees be negotiated? Yes, broker fees are often negotiable. In fact, about 64% of clients who attempt to negotiate succeed in reducing their costs. It’s best to discuss fees during initial meetings with brokers.
Q4. When are business broker fees typically paid? Commission-based fees are usually paid at the closing of the sale. However, some brokers may charge upfront fees or monthly retainers that are paid regardless of whether the business sells.
Q5. What services do business brokers provide to justify their fees? Business brokers offer comprehensive services including business valuation, confidential marketing, connecting with qualified buyers, managing negotiations, and overseeing the entire sale process. These services often result in higher sale prices and smoother transactions.
