Introduction: Why Broker Fees Matter in a Business Sale
Selling a business can be the most important economic decision an entrepreneur makes. While focusing on profits alone is tempting, the broker’s commission can remark impact on your final proceeds. So, how much do brokers charge to sell a business, and what are you paying for?
This guide will break down typical fees, offer real examples, discuss negotiation plans, and provide genius tips to help you maximize your return in 2025.
What Is a Business Broker and What Do They Do?
The Role of a Broker in a Business Sale
Business brokers, also called business transfer agents or intermediaries, help owners find qualified buyers and manage complex negotiations. Their services often include:
- Business valuation
- Marketing and listing your business
- Screening buyers
- Managing confidentiality
- Negotiating deals
- Coordinating due diligence
Types of Brokers
- Main Street Brokers: Focus on businesses worth under $2 million
- M&A Advisors: Handle deals in the mid-market and enterprise range
- Franchise Brokers: Specialize in buying/selling franchise units
How Much Do Brokers Charge to Sell a Business?
Broker fees typically fall into these three categories:
1. Success Fee (Commission-Based)
This is the most common model. A broker charges a percentage of the final sale price, paid only if the business sells.
- Typical Range: 8% to 12% for businesses under $5 million
- Minimum Fee: Usually between $15,000 to $50,000
- Larger businesses (over $5M) often see tiered rates
2. Retainer or Upfront Fee
Some brokers ask for a non-refundable retainer fee at the beginning of the engagement. It shows seller commitment and helps cover early-stage services like marketing or valuation.
- Common Retainer Amount: $2,500 to $15,000
- May be credited against the final success fee
3. Hourly or Milestone-Based Fees
Rarely, brokers charge hourly or based on specific deliverables, such as creating an info packet or running buyer outreach campaigns.
The Lehman Formula: A Classic Commission Model
The Lehman Formula, created by Lehman Brothers, remains a common benchmark for M&A deals and business brokerages.
Original Formula:
- 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
Double Lehman (Popular in 2025):
- 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
This structure helps incentivize brokers to close high-value deals while maintaining fairness for both parties.
What Factors Influence Broker Fees?
Every business is different, and broker charges reflect that. Here are the key factors:
- Size of the Business: Smaller businesses = higher percentage; larger = lower percentage
- Type of Industry: High-risk or highly regulated industries may increase fees
- Profitability and Clean Records: A well-documented, profitable business may get better fee terms
- Geographical Location: Costs vary between cities like New York, San Francisco, or small towns
- Broker Reputation: Seasoned brokers may command premium rates
Real Example of Broker Fees (Case Study)
Case Study: Local Cafe Sale in Texas
- Sale Price: $500,000
- Broker Fee (10%): $50,000
- Retainer Fee: $5,000 (credited to commission)
- Final Payment to Broker: $45,000 at closing
Case Study: Tech Startup in California
- Sale Price: $3.2 million
- Fee Structure: Tiered Lehman Formula
- Total Commission: Approx. $105,000
- No Retainer Fee
These examples show how percentages work differently depending on the size and complexity of the business.
Is Hiring a Broker Worth the Cost?
Hiring a broker might feel expensive, but for most sellers, it’s worth it.
Pros:
- Access to a wider pool of buyers
- Confidentiality is maintained
- Professional negotiation increases the sale price
- Legal compliance and deal structure support
Cons:
- High commission
- Some brokers lack transparency
- Potential conflict if dual-representing buyer and seller
Tip: Hire a broker with no dual agency or one bound by fiduciary responsibilities to the seller.
Can You Negotiate Broker Fees?
Yes, and you should.
How to Negotiate Broker Fees:
- Request a sliding scale: Lower fees for higher sale prices
- Limit the retainer: Ask for it to be credited to the final commission
- Offer exclusivity: In exchange for reduced fees
- Cap the commission: Especially if you have interested buyers already
A confident broker willing to work with you on fee terms is a good sign of transparency and commitment.
How to Choose the Right Business Broker?
Key Traits to Look For:
- Track record of similar deals
- Strong buyer network
- Clear communication
- Licensed and credentialed (Check IBBA or M&A Source)
- Realistic valuation approach
Questions to Ask a Broker:
- What businesses like mine have you sold recently?
- What’s your commission structure?
- Do you charge a retainer, and is it refundable?
- How do you find and vet buyers?
- What’s your marketing strategy?
5 Tips to Reduce the Cost of Selling a Business
- Prepare Financials in Advance: Cleaner books = less time for broker = better fee negotiation
- Vet Multiple Brokers: Compare not just fees but services and experience
- Consider Co-Brokering: If appropriate for wider buyer reach
- Be Ready to Sell: Time kills deals and increases broker work
- Use Lawyers Strategically: Don’t rely on brokers for legal advice—get proper M&A counsel
FAQs: How Much Do Brokers Charge to Sell a Business?
Q1: What is a typical broker fee for a $1 million business?
A: Usually between 8% to 10%, so $80,000 to $100,000.
Q2: Are broker fees negotiable?
A: Yes. You can often negotiate the percentage, retainer, or performance-based bonuses.
Q3: Do I have to pay if my business doesn’t sell?
A: Not if it’s commission-based only. But if you paid a retainer, that’s non-refundable.
Q4: Can I sell my business without a broker?
A: Yes, especially if selling to a partner, employee, or known buyer. However, it’s riskier and more time-consuming.
Q5: How do I find a trustworthy broker?
A: Check IBBA.org, look for Google reviews, and ask for referrals. Always request a signed engagement letter with clear fee terms.
Final Thoughts: Be Strategic With Broker Costs
Understanding how much brokers charge to sell a business gives you the upper hand in planning, budgeting, and negotiating. While a typical broker may charge 8–12%, the value they provide, if chosen wisely, can often far outweigh the cost.
Take time to evaluate your business, understand your sales objectives, and choose a broker who’s transparent, experienced, and aligned with your goals.
