The double Lehman formula is a tiered fee scale that almost nobody bills unmodified any more and almost every mid-market fee conversation still starts from. It is worth knowing precisely, because it is the reference point, and it is worth knowing why engagement letters mostly express something simpler instead. This page sets out the tiers, works the arithmetic on a real deal size, and shows what it converges to.
The tiers, as the scale is normally stated
Double Lehman charges 10% of the first million of consideration, 8% of the second, 6% of the third, 4% of the fourth and 2% of everything above. The original Lehman formula was half of each: 5, 4, 3, 2 and 1. Doubling it was a response to smaller deals, where the original scale produced fees that did not cover the work.
What it comes to on a real deal
On a $12,000,000 transaction the tiers give $100,000 plus $80,000 plus $60,000 plus $40,000 plus 2% of the remaining $8,000,000, which is $160,000: $440,000 in total. That is a shade under 3.7% of the deal, which is why advisers on deals of this size frequently negotiate a flat percentage above the scale rather than the scale itself.
Why engagement letters mostly say something simpler
A single agreed percentage on the expected value is easier to check, easier to argue about once, and does not require both sides to agree on what counts as consideration at each tier. The worksheet on this site uses 5% on $12,000,000 for that reason: $600,000 at close, which is what a negotiated flat rate at this size tends to look like.
The parts of the fee the scale never covered
Retainers, minimum fees and whether retainers are credited against the success fee are all outside the formula and all worth more than the tier arithmetic. On the worked example, $12,500 a month over nine months is $112,500, and whether it is credited moves the number at close from $600,000 to $487,500.
Questions people ask about double lehman formula
What are the double Lehman tiers?
10% of the first million, 8% of the second, 6% of the third, 4% of the fourth and 2% above. The original Lehman scale was half of each.
What does it come to on a $12,000,000 deal?
$440,000, which is just under 3.7%. That is why advisers at this size often negotiate a flat percentage instead of the scale.
Is the formula still used?
As a reference point, constantly. As a billing method, rarely: a single agreed percentage is easier to check and to argue about once.