Success Fee

A success fee is the contingent commission paid to a business broker or M&A advisor only when a transaction closes successfully. It is calculated as a percentage of the transaction value — typically using a tiered formula such as the Lehman Formula — and represents the primary compensation for brokers on commission-only engagements.

The International Business Brokers Association (IBBA), a US-based association, says business broker commissions on Main Street sales can range from 8% to 15% of the final sale price and may be subject to an agreed minimum (IBBA, Your Guide to the Business Brokerage Profession, 2021). For M&A advisory on larger deals, success fees are lower as a percentage but larger in dollars. The most common success fees in the same survey were 4.8% on a $5 million deal, 3.4% on a $20 million deal and 2.0% on a $100 million deal, with North American fees somewhat higher than these global figures (Firmex, Global M&A Fee Guide 2024-25). Many M&A advisors also charge a work fee during the engagement.

The success fee structure aligns the advisor's financial interests with the seller's — both benefit from a higher sale price and a completed transaction. However, sellers should be aware that commission-only structures may discourage advisors from investing time in deals with lower probability of closing.

See also: Retainer, Lehman Formula, M&A Advisor, Business Broker, Engagement Letter.