Build a fee structure using percentage tiers, then see how the estimated fee changes as transaction value moves from a minimum to a maximum.
Start with a common M&A advisory fee structure, then adjust the tiers to match the terms you are reviewing.
Amounts are entered in millions. Each row applies the selected percentage to the portion of value from $A to $B. Leave the final “To” field blank for no cap.
| Tier | From ($M) | To ($M) | Fee % |
|---|---|---|---|
| 1 | |||
| 2 | |||
| 3 | |||
| 4 | |||
| 5 |
Choose the deal size range you want to test, then add minimum fees or retainer credits if they apply.
Hover over each dot to see the transaction value and estimated fee.
A fee structure that looks straightforward at one deal size may behave very differently once minimums, retainers, credits, and tier breaks are applied.
Use these guides to understand the calculator inputs, compare fee structures, and evaluate advisor proposals more confidently.
The traditional Lehman Formula is a declining tiered fee model often summarized as 5-4-3-2-1. This guide explains how the formula works, where it came from, and how to calculate the fee at different transaction values.
Read guide →Compare Lehman, Double Lehman, flat percentage, minimum fee, retainer, and custom tiered arrangements. Learn how each structure changes the economics of a transaction.
Read guide →A practical framework for evaluating an advisor’s process, staffing, transaction experience, incentives, and engagement letter terms before making a decision.
Read guide →The Lehman Formula is a tiered success fee structure historically used to calculate compensation for investment bankers, business brokers, finders, and M&A advisors. It is often summarized as a “5-4-3-2-1” formula because the percentage declines as transaction value increases.
Under the traditional formula, the advisor’s success fee is calculated by applying a different percentage to each layer of transaction value:
| Transaction value tier | Fee percentage |
|---|---|
| First $1 million | 5% |
| Second $1 million | 4% |
| Third $1 million | 3% |
| Fourth $1 million | 2% |
| Above $4 million | 1% |
For a $10 million transaction, the traditional Lehman Formula would produce a $200,000 success fee: $50,000 on the first $1 million, $40,000 on the second, $30,000 on the third, $20,000 on the fourth, and $60,000 on the remaining $6 million.
The logic behind a declining formula is that the first dollars of transaction value require a meaningful amount of work, while larger transaction values should not always increase the advisor’s fee at the same percentage rate. The formula attempts to balance advisor compensation with deal size.
The Lehman Formula is best viewed as a reference point, not a universal market standard. Many modern engagement letters include minimum fees, monthly retainers, retainer credits, expense reimbursement, and modified tier structures. The definition of transaction value also matters. Some agreements include debt, seller notes, earnouts, rollover equity, or assumed liabilities in the fee base.
M&A advisory fees usually combine some form of success fee with other potential economics, such as minimum fees, retainers, retainer credits, and reimbursed expenses. Understanding the full structure is more important than focusing on a headline percentage.
The success fee is typically paid only if a transaction closes. It may be calculated as a flat percentage of transaction value, a declining tiered percentage, or a custom formula negotiated between the client and advisor.
The traditional Lehman Formula uses the 5-4-3-2-1 tier structure. The Double Lehman Formula doubles those percentages to 10-8-6-4-2. Double Lehman structures are often referenced in lower-middle-market transactions because smaller deals can require substantial work relative to transaction value.
A flat percentage fee applies the same percentage to the entire transaction value. For example, a 3% fee on a $20 million transaction would equal $600,000. Flat fees are easy to understand but may produce different incentives than a tiered formula.
A minimum success fee creates a floor on the advisor’s compensation. For example, if the formula produces a $180,000 fee but the engagement letter has a $250,000 minimum, the payable success fee would be $250,000. Minimums are especially important in smaller transactions.
Many advisors charge monthly retainers during preparation, marketing, and diligence. Some retainers are credited against the success fee at closing; others are not. A fully credited retainer reduces the amount due at closing. A non-credited retainer increases total compensation to the advisor.
Engagement letters may also require the client to reimburse expenses. These can include travel, data room costs, research tools, printing, legal support, or other deal-related expenses. Expenses should be reviewed separately from advisory compensation.
The fee percentage is only part of the economics. The definition of transaction value can materially affect the fee. Review whether the agreement includes cash proceeds, assumed debt, earnouts, seller notes, rollover equity, working capital adjustments, or contingent consideration.
Choosing an M&A advisor is not just a pricing decision. The right advisor should fit the size, complexity, buyer universe, and goals of the transaction.
Different advisors are suited for different types of transactions. A small local business sale, a lower-middle-market company sale, a private equity recapitalization, and a strategic divestiture may require different processes and buyer coverage. Ask whether the advisor regularly works on transactions similar to yours.
The senior person who pitches the engagement may not be the person managing day-to-day execution. Ask who will prepare materials, build the buyer list, conduct outreach, manage diligence, and negotiate with buyers. The strength and availability of the execution team matters.
A strong advisor should be able to explain the process clearly, including preparation, buyer research, confidential outreach, indications of interest, management meetings, letters of intent, diligence, and closing. Vague process descriptions can be a warning sign.
Ask how the advisor will identify likely buyers. A good buyer list should include more than obvious names. Depending on the company, the universe may include strategic acquirers, private equity firms, independent sponsors, search funds, family offices, and competitors.
Be cautious if an advisor promises an unusually high valuation without explaining the assumptions. A credible advisor should discuss value drivers, risks, buyer categories, recent market feedback, and the difference between headline valuation and net proceeds.
Review the success fee, minimum fee, retainer, retainer credit, expense reimbursement, tail period, exclusivity term, and transaction value definition. A lower percentage is not always better if the structure creates poor incentives or includes broad fee triggers.