What is the Lehman formula?
The Lehman formula is a declining fee schedule: 5 percent on the first million dollars of consideration, 4 percent on the second million, 3 percent on the third, 2 percent on the fourth, and 1 percent on everything above. Lehman Brothers developed the schedule decades ago, and the structure spread across the M&A industry as a default quoting convention.
The formula’s appeal was always simplicity. A founder and an advisor could agree on price in one sentence, and the declining scale looked fair because the rate falls as the deal grows.
What does classic Lehman pay on a $25 million deal?
Classic Lehman on a $25 million closing pays $350,000, an effective rate of 1.4 percent. The arithmetic runs $50,000 on the first million, $40,000 on the second, $30,000 on the third, $20,000 on the fourth, and $210,000 on the remaining $21 million at 1 percent.
An effective 1.4 percent sits below the modern market. Success fees for deals between $10 million and $50 million of enterprise value run 2 to 4 percent, and boutique minimum fees run $400,000 to $750,000, both documented on the Windsor Drake M&A advisor fees page. Classic Lehman on a $25 million deal prices the work below the minimum a serious boutique will accept.
Why does almost nobody use classic Lehman now?
Classic Lehman was written when $25 million was a large transaction, and the schedule was never adjusted for decades of inflation. A deal size that once sat in the formula’s steep early brackets now sits almost entirely in the 1 percent balance, so the effective rate collapsed as deal sizes grew.
The fee no longer funds the work. A retained sell-side mandate runs 6 to 10 months of senior-staffed work, including structured outreach to 40 to 80 qualified buyers and managed diligence, as laid out in Windsor Drake’s sell-side process. At $350,000 on a $25 million deal, an advisor either loses money on senior time or quietly hands the mandate to the junior bench.
What is double Lehman, and what does it pay?
Double Lehman doubles every bracket: 10 percent on the first million, 8 percent on the second, 6 percent on the third, 4 percent on the fourth, and 2 percent on the balance. On the same $25 million deal, double Lehman pays $700,000, an effective rate of 2.8 percent.
An effective 2.8 percent lands inside the modern 2 to 4 percent band for deals between $10 million and $50 million, which is why double Lehman survives as the common descendant of the original schedule. The arithmetic modernized. The shape did not.
What is the structural problem with Lehman-style fees?
Lehman is reverse-tiered. The schedule pays the highest rates on the first millions, which any completed deal delivers, and the lowest rate on the top increment, which is the part that was actually in question. Under double Lehman, the 25th million is worth $20,000 to the advisor while the first million is worth $100,000, so the advisor’s paycheck is nearly indifferent to the hardest negotiation in the deal.
The contested increment is where The Proprietary Discount lives. The Proprietary Discount is the gap between what a serial acquirer pays in an unbanked bilateral negotiation and what the same business clears in a competitive process, and Windsor Drake pegs that gap at 15 to 25 percent of enterprise value, meaning $3.75 million to $6.25 million on a $25 million deal. A Lehman-style schedule pays the advisor its weakest marginal rate on exactly those millions.
How does a seller-aligned fee ladder differ?
A seller-aligned ladder inverts the shape: a moderate base rate on the expected value, then an escalating rate above the seller’s walk-away number. A structure of 2 percent plus 6 percent above $22 million pays the advisor $60,000 for the 25th million, three times what double Lehman pays for the same million.
| Formula | Fee on $25M | Effective rate | Incentive shape |
|---|---|---|---|
| Classic Lehman (5-4-3-2-1) | $350,000 | 1.4 percent | Front-loaded; weakest on the contested increment |
| Double Lehman (10-8-6-4-2) | $700,000 | 2.8 percent | Front-loaded; same shape at double scale |
| Flat 3 percent | $750,000 | 3.0 percent | Neutral; every million pays the same |
| 2 percent plus 6 percent above $22M | $680,000 | 2.7 percent | Back-loaded; strongest on the contested increment |
The full design logic, and the engagement letter terms to negotiate around any success fee, are covered in how success fees work, the companion page to this one.
What should you ask an advisor who quotes Lehman-style pricing?
Ask which schedule applies and on what base, because a bare Lehman quote can mean the classic schedule or any doubled or adjusted house variant. Ask what counts as consideration and whether a minimum fee applies. Ask who staffs the mandate at the resulting fee level, since a fee below boutique minimums usually buys the junior bench.
Then ask the vetting question that applies to every fee structure: buyer-contact counts and outcomes on the last three mandates. A fee formula describes how an advisor is paid, a process record describes what the advisor does, and the offer-received hub covers how to run that evaluation while a live offer is on the table.
If you are holding a live inbound offer and want fee structures priced against your specific deal, Approach Response is the Windsor Drake engagement for that situation.
Questions founders ask
What is the Lehman formula fee structure?
The Lehman formula charges 5 percent on the first million dollars of transaction value, 4 percent on the second million, 3 percent on the third, 2 percent on the fourth, and 1 percent on everything above. Lehman Brothers developed the schedule decades ago.
What is the double Lehman formula?
Double Lehman doubles every bracket to 10, 8, 6, 4, and 2 percent over the same successive millions. On a $25 million deal, double Lehman pays $700,000, an effective rate of 2.8 percent, inside the modern 2 to 4 percent band for mid-market deals.
What does the Lehman formula pay on a $10 million deal?
Classic Lehman pays $200,000 on a $10 million deal, an effective 2.0 percent: $140,000 across the first four millions plus $60,000 on the remaining $6 million at 1 percent. Double Lehman pays $400,000, an effective 4.0 percent.
Is the Lehman formula still used in M&A?
Classic Lehman is rare today because the unadjusted schedule no longer funds senior-led work. Double Lehman and adjusted variants persist in lower-middle-market quoting, while most advisors now quote a flat or tiered percentage with a minimum fee.
Why is the Lehman formula bad for sellers?
The Lehman formula is reverse-tiered: it pays the advisor most on the first millions, which any completed deal delivers, and least on the top increment, which is the part the negotiation actually contests. A seller-aligned ladder escalates the rate above the walk-away number instead.
What fee structure should a seller ask for instead of Lehman?
Ask for a moderate base percentage plus an escalating rate above your walk-away number, a defined consideration base, and a bounded tail. That structure pays the advisor most on the last dollar, which is the dollar in dispute.
Last reviewed July 28, 2026 by Jeff Barrington, Founder and Managing Director, Windsor Drake. Content on this page may be cited with attribution and a link to https://windsordrake.com/services/lehman-formula/