Hourly, Fixed Fee, or Phased: How to Price a Sale Process Engagement

Why the work resists a single hourly estimate

A purchase agreement negotiation has a shape most attorneys can estimate. A sale process does not, because the hours depend on decisions the client has not yet made. A client who approves a buyer list of fifteen names generates a different NDA and IOI workload than one who approves sixty. A client with a clean data room moves through readiness in two weeks; a client with three entities, unsigned customer contracts, and a shareholder dispute takes two months.

Hourly billing handles this variability by passing it through to the client, which is accurate but unhelpful. The owner asks what the sale will cost, and the honest hourly answer is a wide range. Owners who have never run a process may read a wide range as an unknown risk and choose the banker, whose fee is a percentage they can calculate, even if that fee may be larger.

Hourly billing also creates a quiet problem inside the firm. The partner, aware that the client is watching the clock, may skip preparation work that improves the process: a second pass on the CIM, a longer buyer list, or a more careful readiness review. The work that makes a process competitive is exactly the work that is easiest to trim under hourly pressure.

The single fixed fee and where it breaks

Some firms respond by quoting one fixed fee for the whole engagement. This is attractive to clients and easy to explain. The difficulty is that the firm sets the price at the moment it knows the least.

At signing, the firm has not seen the data room. It does not know how many buyers the client will approve or how many will sign NDAs. It does not know whether the process will produce three IOIs or none, whether the LOI negotiation takes one round or four, or whether diligence will surface a problem that requires a restructuring. A fixed fee covering all of that either carries a large margin for uncertainty, which the client pays whether or not the uncertainty materializes, or is set too low, which the firm absorbs.

A single fixed fee can also limit the client's ability to stop cleanly unless the engagement letter explains what has been earned at each point. An owner who gets through valuation and decides the range is too low to sell should be able to end the engagement having paid for the work done. State the termination and earned-fee mechanics before work begins. The ABA Model Rule 1.5 framework likewise emphasizes communicating the scope and basis or rate of the fee, preferably in writing, and requires fees to be reasonable. [1]

The phased model and how to build it

A phased fee prices each of the six phases separately: discovery and readiness, valuation, marketing materials, buyer matching and outreach, offers, and negotiation through close. The firm invoices at the start of each phase. The client can stop at the end of any phase. The engagement letter states the fee for each.

To build the schedule, the partner estimates the hours for each phase for a typical client in the firm's range, applies the firm's blended rate, and adds a margin that reflects the phase's uncertainty. The early phases are the most predictable and should carry the smallest margin. The offers phase and the closing phase vary most and may be priced as a fixed fee with a stated assumption, for example, "assumes up to twenty NDAs and up to five IOIs," with hourly billing above the assumption.

A simple illustration: a client with $4 million of EBITDA and a clean set of books might see readiness and valuation together priced in the low five figures, marketing materials and buyer outreach each priced similarly, and the offers and closing phases priced higher with stated assumptions. The total may land below a banker's fee at the same enterprise value, but that comparison depends on the scope, market, and provider. The client can still see where every dollar goes.

Phased pricing has a second benefit that matters for regulatory posture. Because each phase is paid for work performed, regardless of outcome, the firm can present a fact pattern for counsel to review that is distinct from a fee that rises with the purchase price or depends on closing. The firm should confirm with its own counsel how the federal M&A broker exemption and applicable state rules apply to the activities it takes on and the fees it charges. The federal statute makes the exemption conditional and lists excluded activities, so a fee structure alone does not resolve the analysis. [2]

Hybrids that work and one that needs review

Several hybrids are common and sensible. A fixed fee for the first four phases with hourly billing for offers and closing is one. A monthly fee for the duration of the engagement, with the client free to end it at any month, is another and behaves like a phased fee with finer granularity. A fixed fee per phase with a stated hourly rate for work outside the assumptions is a third.

A transaction-based component needs separate review rather than a categorical answer. A closing bonus, a percentage of the purchase price, or a reduced hourly rate in exchange for a share of proceeds can raise broker-registration, fee, and professional-responsibility questions. The SEC's M&A broker guidance has described conditions under which transaction-based compensation could be received, while the current federal exemption also has statutory conditions and exclusions. [2] [3] Do not assume that a label such as "success fee" is either automatically permitted or automatically prohibited. Ask the firm's own counsel to review the activities, parties, transaction structure, jurisdiction, and proposed compensation before using one. For a conservative pricing template, make each fee component earned by defined work and state what happens if the process stops.

Setting the schedule this week

If you have a process engagement in view, draft a fee schedule now. List the six phases. For each, write the tasks the firm will perform, estimate hours for an associate and a partner, and set a fee. Write the assumptions under the offers and closing phases. Then total it and compare the figure with what a banker would charge the same client at a plausible enterprise value. That comparison is the number the client will want to see.

Once a schedule exists, it becomes a template. The second process engagement adjusts the numbers; it does not start over. After a few engagements the firm will know its actual hours by phase and can price with more confidence.

How Acquivo Pro fits

Phased pricing works best when the firm's own costs are predictable, and Acquivo Pro is priced per seat on a flat monthly subscription with no per-deal fees, so the platform cost does not change with the number of clients a seat runs or the size of any transaction. One seat manages multiple concurrent client processes across the same six phases a phased fee schedule describes. The valuation engine is deterministic, so the figures the firm presents in the valuation phase trace to their source and repeat on the same inputs. To walk through a process on a client you have in mind, request a demo through the Contact page.