It's one of the most common questions Nexus Concord gets from Indiana business owners during initial conversations: "If most brokers charge 10%, how does your firm operate at 5%?"
It's a fair question. And the honest answer reveals something most sellers never learn until after they've signed a listing agreement: the difference between a 10% fee and a 5% fee isn't a difference in the work performed. It's a difference in who else gets paid before the advisor.
Model one: the franchise brokerage.
Most business brokerages operate as franchise operations. Several national franchise networks dominate the industry, with local franchisees operating under a licensed brand in exchange for ongoing payments back to the corporate parent.
The franchise structure comes with a defined cost stack. The seller's success fee has to fund all of it before a dollar reaches the person actually representing them.
Layer one: corporate franchise obligations.
Before any money reaches the local office, the franchisee owes several categories of payment back to corporate:
Initial franchise fee. A substantial one-time payment made before opening — effectively a license to operate under the brand — that has to be recouped over time from the fees the franchisee collects.
Royalty fees. Ongoing payments to the corporate parent based on gross revenues, typically structured as a tiered percentage of collected fees. Every dollar of success fee the franchisee collects triggers a royalty owed back to corporate.
Brand and marketing fund contributions. A separate fee to fund national advertising, brand campaigns, and lead generation. Paid on top of royalty.
Technology fees. Monthly fees for CRM systems, valuation software, deal databases, and other proprietary technology maintained by the franchisor.
Layer two: office overhead and profit.
What remains after corporate obligations covers the local franchise office's operating costs and profit margin. Office rent. Staffing (administrative, marketing, support). Insurance and professional services. Marketing beyond what the national brand fund covers. General administrative expenses.
The office principal — the local franchisee — also has to make an economic return on their initial franchise investment. That means the office margin needs to be substantial enough to service the license fee amortization and generate a return on the franchisee's capital.
Layer three: the agent split.
At most franchise brokerages, the seller isn't represented by the local franchisee directly. They're represented by a producing agent who works for the franchisee. When a deal closes, the fee splits between the office and the producing agent — typically around half to each side, though the exact ratio varies by office and agent tenure.
This is the final layer of the fee stack. The producing agent gets their commission share. The franchise office keeps the remainder, out of which the office pays for everything in layers one and two, and out of which the local principal takes their profit.
What this looks like in practice.
Consider a business sale at a franchise brokerage charging a 10% success fee. Layer one strips out a significant portion in royalty, brand fund, and technology fees paid to corporate. Layer three splits the remaining amount between the office and the producing agent, typically around half to each side. Out of the office's share, the franchisee then pays operating expenses, staff compensation, and amortization of the initial franchise fee investment.
The producing agent — the person actually representing the seller, running the process, and communicating with buyers — nets less than half of the seller's total fee. The rest is absorbed by the franchise system before the representative ever sees a dollar.
The 10% fee exists because the franchise cost structure requires it. Cut the fee in half, and the math stops working — the royalties still have to be paid, the marketing fund still has to be funded, the office still has to cover rent and staff, and the agent still has to earn a compensation-competitive share to keep working there.
The 10% isn't priced against the work performed. It is priced against the cost of running a franchise system.
Model two: the boutique principal firm.
A boutique principal firm operates outside the franchise system entirely. There is no corporate parent taking royalties. There is no national marketing fund absorbing a percentage of gross revenues. There are no technology fees paid to a franchisor's software platform. There is no initial franchise investment to recoup. And there is no producing agent splitting the fee with a franchise office.
The advisor is the firm. The advisor represents the seller personally — from initial conversation through closing wire — without handing off to a junior producing agent along the way. The advisor pays their own overhead directly (office, subscriptions, professional services) and keeps whatever remains after the actual costs of the engagement.
A 5% success fee on the same transaction generates half the revenue of a 10% franchise fee, but all of it stays with the advisor. There is no royalty payment triggered. There is no marketing fund contribution. There is no technology fee allocation to a national platform. There is no office split with a producing agent. The advisor pays their direct engagement costs and their own firm overhead, and that is the entirety of the cost structure.
The savings flow somewhere. In the franchise model, more than half of every fee is absorbed by franchise obligations, office overhead, and agent splits before it reaches the representative. In the boutique model, that same margin stays in the seller's pocket.
What sellers actually receive.
The natural question is whether the extra fee at a franchise brokerage buys something meaningful. In the lower middle market — the segment Nexus Concord serves, with businesses valued between $2,000,000 and $5,000,000 — the honest answer is that it buys the seller very little.
Consider what actually happens during a lower middle market sale:
The buyer pools are the same. Strategic acquirers, private equity firms, family offices, qualified individual buyers. Boutique advisors and franchise brokerages target the same buyer universe using the same M&A databases, industry directories, and professional networks. National franchise brands do not have exclusive access to buyers that boutique advisors cannot reach.
The marketing materials are functionally identical. Teaser. Confidential Information Memorandum. Financial summary. Management presentation. Data room. The deliverables are standard across the industry. A boutique advisor produces them at equivalent quality — often at higher quality, because the senior advisor writes them personally rather than delegating to a junior associate on a franchise office team.
The diligence process is the same. Buyers conduct the same Quality of Earnings analysis, the same legal review, the same operational and structural diligence regardless of which model represents the seller. The standards aren't set by the broker. They're set by the buyer.
The closing mechanics are the same. Definitive Purchase Agreement. Closing checklist. Wire instructions. Same deliverables, same lawyers, same coordination challenges. A franchise office does not close a deal any differently than a boutique advisor does.
What differs between the two models is not the work product delivered to the seller. It is the seniority of the person delivering it — and the amount of attention that person can bring to the engagement.
Attention is the real differentiator.
In a franchise brokerage, a producing agent typically carries multiple active listings simultaneously. That volume is necessary for the office to hit revenue targets — and to fund the royalty, marketing fund, technology fee, and franchise fee amortization stack described above.
Multiple simultaneous listings mean each seller's deal is one of many demanding the agent's attention on any given day. When a buyer's diligence question hits the agent's inbox at 4 p.m. on a Friday, a specific deal is competing with others for whatever attention remains. The agent isn't being lazy or careless. They are stretched by design.
A boutique principal advisor running a smaller number of concurrent engagements has fundamentally different time economics. Each deal receives more hours. Each issue receives more thought. Each negotiation receives more preparation. And every interaction with a buyer happens at the senior level — not through a junior agent who has to escalate every meaningful decision back to a franchise office principal.
For sellers in the lower middle market, where deals are smaller than institutional transactions but the work per deal is comparable to upper middle market transactions, that attention disparity is significant. The business owner is selling their entire life's work. The engagement deserves an advisor who treats it that way.
The question worth asking.
When evaluating an M&A advisor, the most useful question isn't "what's your fee?" It's "what does my fee actually pay for?"
In a franchise brokerage, more than half of the fee funds obligations the seller never sees: royalties owed to corporate, marketing fund contributions, technology platform fees, amortization of the office's initial franchise investment, office overhead, and profit for the local principal. The producing agent representing the seller nets less than half of what the seller paid.
In a boutique principal firm, the math is transparent. The fee funds the advisor's time, the direct expenses of the engagement, and the advisor's own firm overhead. There is no franchise obligation absorbing revenue in the background. There is no producing agent splitting the fee with an office. The advisor is the entirety of the cost structure.
The two models exist for different reasons. The franchise model exists because it can be replicated and sold. The boutique model exists because it can produce better outcomes per dollar of fee. Knowing which one is being hired — and why — is part of making an informed decision about who will represent the most consequential transaction of an owner's career.
For businesses in the $2,000,000 to $5,000,000 range, the boutique principal model delivers everything the seller actually needs at a materially lower total fee. The economics make sense, the attention is real, and the savings are meaningful.
Sellers deserve to know where their fee actually goes.