Founders preparing for a software exit can find valuation multiples and benchmark data almost everywhere. What is much harder to find is a clear answer to a more practical question: what does it actually cost to run the process that sells the company?
A software business with $5M to $100M in ARR will often transact within the $20M to $200M enterprise value range. At that scale, the advisor fee is typically the single largest line item in the cost of a sale.
Fees in this segment do not work the way a flat “2% to 6%” answer suggests. The effective rate generally compresses as enterprise value rises, the fee structure matters more than the headline percentage, and the definition of transaction value can move the total fee more than a full percentage point. On a transaction of this size, the difference between a 2% and 6% fee can amount to millions of dollars.
This is a mid-market question, not a small-business one. What follows is a clear breakdown of the main fee components, an illustrative model of what they cost across the range, and a framework for assessing whether a proposal aligns the advisor’s incentives with the founder’s outcome.
How M&A advisor fees are structured
An M&A advisor fee is the compensation a sell-side advisor earns to run a company sale, typically a monthly retainer plus a success fee paid when the transaction closes. In the mid-market, most fee agreements share the same building blocks; the variation is in how each is sized and when it is paid.
- Retainer or work fee. A monthly or upfront fee that funds preparation and signals seller commitment. It is highly negotiable and frequently credited against the success fee at close. Some advisors may waive it for larger or particularly attractive mandates. At L40°, most mandates are run on a success-only basis, with no retainer.
- Success fee. The bulk of the compensation, paid only if the deal closes, calculated as a percentage of transaction value. This is where advisor and seller incentives are meant to align.
- Minimum fee. A floor on the success fee. It rarely binds at $20M+ EV but defines the smallest fee an advisor will accept to take on a time-intensive process.
- Tail period. A window after the engagement ends, often 12 to 24 months, during which the advisor still earns a success fee if the company sells to a buyer they introduced.
- Exclusivity. The period during which the advisor is the sole representative. Founders should confirm the term and the conditions for ending it.
Success fee mechanics: the Lehman family of schedules
The Lehman formula is a tiered success fee that applies a declining percentage across value brackets. The original is a 5-4-3-2-1 structure: 5 percent of the first million of value, 4 percent of the second, and so on down to 1 percent on the balance. Inflation made the original numbers unworkable for modern deals, so two variants dominate today. The Double Lehman doubles each rate (10-8-6-4-2) and shows up on smaller, higher-touch deals. The Modified Lehman compresses the upper tiers and is the common shape in mid-market transactions, which is why effective rates in this band sit lower than the headline tiers imply.
The last row is the most important one for alignment. A schedule that pays the advisor more as the price climbs ties their incentive to maximizing the outcome rather than closing quickly. That distinction sits at the center of how to read any fee proposal.
What advisor fees actually cost across the mid-market
The table below is an illustrative model of prevailing market structures, not an L40° rate card. It applies documented Modified and Double Lehman schedules across the band and expresses the result as a range, sanity-checked against mid-market survey data. Use it only for orientation. Actual fees are set per transaction.
Why the headline percentage is the wrong thing to negotiate
Two proposals with the same success fee percentage can produce very different bills. The L40° Fee Alignment Lens reads any fee proposal across three axes that decide what you actually pay and what the advisor is motivated to do.
- Fee base. What counts toward transaction value? Whether earnouts, rollover equity, and seller notes are included can swing the fee well beyond a point of headline rate.
- Retainer credit. Is the retainer credited against the success fee at close, or paid on top of it? Credited retainers keep the advisor's incentive tied to the outcome.
- Minimum and tail. How high is the minimum, and how long and broad is the tail? The minimum establishes the lowest success fee the advisor will accept if a transaction closes, reflecting the amount of work required to prepare and run a competitive process even when the final transaction value falls below expectations. The tail protects the advisor if the company later sells to a buyer introduced during the engagement, but an overly broad tail can create fee exposure long after the mandate ends.
In practice, a lower headline percentage combined with a broad fee base, an uncredited retainer, or an expansive tail can cost more than a higher rate with clearly defined terms. The objective is not simply to negotiate the smallest percentage. It is to understand what the structure rewards and whether the advisor’s economics remain aligned with the seller’s outcome.
For a fuller framework on evaluating an advisor beyond fees, including track record, buyer access, and red flags, see our guide to finding the right M&A advisor.
What this means for founders
The advisor fee is the largest cost of a sale, though not the only one: legal, quality-of-earnings, and tax advisory sit alongside it. Across the mid-market the effective success fee lands in a fairly predictable band, so the figure itself is rarely where a process is won or lost. The better question is not “what is your rate” but “what does your structure incentivize you to do.” Fee structure is a proxy for whose outcome the advisor optimizes.
L40° runs partner-led, sell-side processes for software, tech, and AI founders in exactly this band, with compensation structured around the seller's outcome.
If you want a candid read on what a competitive process would cost and capture for your business, talk to a partner.
Recommended
- Pre-sale Preparation: How to Find the Right M&A Advisor
- M&A Advisory Firms vs Investment Banking
- Sell-Side M&A: An In-Depth Guide for Tech & SaaS Founders
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