Business Sales

I’ve closed enough deals to know that the conversation about broker commissions makes most business owners uncomfortable. Let’s fix that.

The commission structure you choose isn’t just about percentages. It’s about aligning incentives, protecting your downside, and making sure everyone’s motivated to get the deal across the finish line.

Understanding the Double Lehman Formula

The Double Lehman formula has been around since the 1960s, and it’s still kicking for a reason. Here’s how it breaks down:

• 10% on the first $1 million
• 8% on the second million
• 6% on the third million
• 4% on the fourth million
• 2% on everything above $4 million

On a $3 million sale, you’re looking at roughly $220,000 in commission. That stings a bit when you first see it, but let me explain why it might actually work in your favor.

The structure front-loads the compensation, which means your broker has serious skin in the game from day one. They’re not just throwing your business on a marketplace and hoping for the best. They’re working the phones, qualifying buyers, and protecting your confidentiality like it’s their own secret recipe.

For more in-depth explanation of this form of business valuation be sure to check out https://truebusinessbuilders.com/.

How Flat Fee Models Actually Work

Flat fee arrangements typically range from $50,000 to $150,000 depending on your business size and complexity. Some brokers pitch this as the “honest” model, but I’ve learned that honesty has multiple definitions in this industry.

The appeal is obvious. You know exactly what you’ll pay regardless of sale price. If your business sells for $5 million instead of $3 million, your broker fee doesn’t jump accordingly.

But here’s the thing nobody talks about: flat fee brokers often lack the same urgency to maximize your sale price. Why would they grind through another round of negotiations to squeeze out an extra $200K when their compensation stays the same?

Running the Numbers on Different Deal Sizes

Let’s get practical. On a $2 million sale:

• Double Lehman: approximately $180,000
• Flat fee: typically $75,000-$100,000

The flat fee looks better here, no question.

But scale up to a $6 million sale:

• Double Lehman: approximately $340,000
• Flat fee: still around $100,000-$150,000

Now the equation shifts. Your broker working on commission has a massive incentive to push that valuation higher, fight for better terms, and keep multiple buyers competing. The flat fee broker? They’re already planning their next vacation.

The Hybrid Model Nobody Mentions

Some brokers offer a retainer plus success fee structure. You might pay $25,000 upfront with a reduced commission of 4-6% on the backend.

I’ve seen this work well for businesses in the $1-3 million range. The retainer ensures the broker takes you seriously, and the reduced backend fee still provides meaningful incentive without breaking your bank account.

The downside? You’re out that retainer money if the deal falls through, even if it’s not the broker’s fault.

What Actually Matters More Than Commission Structure

Your broker’s network determines your outcome more than their fee structure ever will. I’ve watched mediocre brokers with perfect commission arrangements produce terrible results, while connected professionals with higher fees delivered multiple competing offers.

Ask about their database size, their buyer relationships, and how many deals they’ve closed in your industry specifically. Vague answers should send you running.

The best brokers have buyers already in mind before you even sign the engagement letter. They’re making calls within 48 hours of taking your listing, and they’re positioning your business strategically rather than just listing facts on a website.

My Take After Watching This Game For Years

Commission structure matters, but it’s probably your third or fourth most important consideration. Broker competence, industry expertise, and proven track record should drive your decision.

If your business is under $2 million, negotiate hard for a flat fee or hybrid model. The Double Lehman formula hits disproportionately hard at smaller valuations.

Above $3 million? The commission-based model often produces better results because the incentives align properly. Your broker isn’t just trying to get a deal done, they’re trying to get the best deal done.

And here’s something nobody wants to admit: the wrong broker at any commission rate will cost you far more in lost value than you’ll ever save on fees. I’ve seen $500K swings in final sale price based purely on how well the broker positioned the business and negotiated terms.

Choose your representation carefully. The commission discussion should come after you’ve verified their competence, not before.