Lehman Formula


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Lehman Formula

A formula for determining a broker's commission for exceptionally large transactions. While there are variations on the formula and the numbers involved have changed over the years, the basic concept behind the Lehman formula remains that a broker charges a smaller percentage for each certain dollar amount that the transaction is worth. For example, in its original form, the Lehman formula charged a 5% commission for the first million dollars, 4% for the second million, 3% for the third million, 2% for the fourth million, and, finally, a 1% commission for everything above $4 million. It was developed by Lehman Brothers in the 1970s.
References in periodicals archive ?
A common benchmark for calculating a business valuator's compensation is the Lehman formula, which suggests paying a BV intermediary the sum of 5% of the first million dollars of a transaction's value plus 4% of value between $1 million and $2 million, 3% of value between $2 million and $3 million, 2% of value between $3 million and $4 million, and 1% of value in excess of $4 million.
The standard Lehman formula is 5% on the first million, 4% on the next, and so on, down to a residual 1%.
They couldn't justify the standard Lehman formula transaction fee to have us pursue their internally identified targets, so they asked us to develop an outsource solution that would accomplish their goals while minimizing internal costs.
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