How do fee models differ between business brokers and M&A advisors?
Business brokers are paid mainly by commission when the business sells, while M&A advisors usually add a work fee paid during the engagement, regardless of outcome. 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). In a 2024–25 survey of 456 middle-market advisors (about half in North America), the most common monthly work fee was $5,000 to $10,000, and the most common fixed engagement fee was also $5,000 to $10,000 (Firmex, Global M&A Fee Guide 2024-25). The fundamental difference is timing: brokers get paid mostly when your business sells, while M&A advisors are paid in part while they work. A broker's upfront fee (where charged, for example for a Broker Opinion of Value) is applied against the closing commission, which is a different mechanism from an M&A advisor's monthly work fee.
Business Broker Fee Models
Business brokers focus on smaller businesses and typically serve owner-operators.
In most cases, broker commissions follow a percentage-of-sale-price model. On larger deals, many brokers and advisors use the Lehman Formula instead of a flat rate. The classic Lehman Formula charges 5% of the first $1 million, 4% of the second million, and so on down to 1%; "Double Lehman" starts at 10% and falls to 2% (Firmex, Global M&A Fee Guide 2024-25).
Business broker commissions are subject to GST/HST as a taxable professional service under the Excise Tax Act.
The success-only model means sellers pay nothing upfront and incur no costs if the business does not sell. The tradeoff is a higher total fee percentage compared to retainer models.
M&A Advisor Fee Models
M&A advisors typically work on larger transactions and serve businesses with institutional buyers or private equity interest. Most charge a work fee, monthly or fixed, during the engagement (see the survey figures above) as well as a success fee at closing.
Whether work fees are credited against the final success fee varies by advisor and engagement — some credit them as advance payments against the success fee, others treat them as separate compensation. Confirm the specific treatment before signing.
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). Those rates are well below broker percentages, partly because of the work fee.
Advisors also use work fees to screen out sellers who aren't committed to completing a transaction, and to be paid for their work if the seller decides not to proceed.
When Each Model Makes Sense
Retainer-plus-success structures become more common as deal size grows; ask each advisor which structure they would propose for your deal.
For smaller transactions, success-based broker fees align incentives without requiring upfront capital from the seller. For larger deals, the work-fee model reflects the increased complexity and longer timeline of institutional transactions, where the advisor's work begins months before a buyer is identified.
Total Cost Comparison
For example, on a $5 million transaction under the classic Lehman Formula, the total fee calculates to $150,000 ($50,000 + $40,000 + $30,000 + $20,000 + $10,000), an effective rate of 3%. A flat percentage on the same deal can cost considerably more, so ask any broker quoting a flat rate on a deal of this size to compare it with a tiered scale.
Under a retainer-plus-success model, add the monthly work fees for the expected engagement length to the success fee, and check whether the work fees are credited against it. Work fees are paid before closing, so they are a cost even if the deal doesn't complete.
The retainer model frontloads costs but typically results in lower total percentages on larger deals. The success-only model defers all costs to closing but charges higher percentages to compensate for the advisor's risk.
This article is for informational purposes only and does not constitute financial, legal, or business advice. Every business sale is different. Before making decisions about valuation, pricing, or engaging an advisor, consult a qualified professional familiar with your specific situation.
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