How Business Brokers Make Money: Spread vs Commission Model Explained

0:00Today's deal was crazy. myself, Michael Ridley, Heather, and Bill went through a deal that was very meta. It was a business brokerage. In other words, a brokerage of businesses on a podcast talking about businesses for sale. This was one of the wildest deals we've looked at and perhaps one of the most unique business models I've ever seen after nearly 500 of these episodes. And anyway, hope you enjoyed the episode. We had a ton of fun making it and as usual, great work by my co-host. Here's the episode. We'll start Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100 % beers anymore.

0:38I'm thumbs downing on just the plus inventory. This episode of Acquisitions Anonymous is brought to you by Quiet Light Brokerage. And I'm sitting here to tell you I have both sold businesses with Quiet Light and bought businesses from Quiet Light. And in my opinion, they are extremely high quality people, very, very rigorous, and they're really straight shooters. One of the things that differentiates QuietLight is every single broker at QuietLight has been an operator. They have been an operator of an active business and they have sold it. Many of them have also bought businesses. So they really understand what it means to be in the seller's seat and how important that is to you.

1:17And they also really understand what it means to be in the buyer's seat. So they don't BS you, but they really do know how buyers think. All of the transactions I did with QuietLight, in fact, one of them, they took over a sale process that another broker had not been able to get done. And they got it done for me inside of 90 days. So I've had very positive personal experiences with Quiet Light. And I do recommend them wholeheartedly to a lot of people. And now they're a sponsor of the podcast. So one thing you can get for free is if you head over to quietlight.com, they will do a valuation clarity call with you, which is not a sales call.

1:50They're not pushy people. They'll just kind of tell you, hey, here's what your business is probably worth. And here are a few things you could do to make it worth more. And hey, maybe don't sell it right now. Do these things. Come back to us in six months and you'll get a much better multiple. So if you're thinking about selling your business or you're thinking about buying a business, especially in the e-commerce space where they're very, very strong and been doing this for over a decade, go check out Quiet Light Brokerage over at quietlight.com. Oh my God. Heather, we have these moments in the pre-show where I look at everybody and I have to start yelling at everybody.

2:23Like, why are we now recording this? So Bill was about to tell us a story. All right. Before I get really mad that we weren't recording. Bill, over to you. All right. So I've got a great story. So long-time listeners of the pod may know that I have a soft spot in my heart for dumpster rental businesses. They were one of the first businesses I ever inquired on and got very close to acquiring way back when I was a little wee business buyer. So I've always thought they're cool businesses. And there's one for sale in Charlotte. So I inquired on it. And I'm up on the phone with the broker. I'm speaking with the broker for, you know, a while, about halfway through the call, I asked him a question.

2:59He goes, wait, are you Bill D 'Alessandro from acquisitions anonymous? Are you the bill? And I was like, yeah, that's me. And he goes, oh my gosh, I love your podcast. I listen to like every single one. Like you guys do so great. I'm like such a big fan. Uh, and I was like, you know, thanks. That's so great. And he goes, he immediately flips flips and he's like, do you have any feedback on my teaser? You guys are always ripping apart these teasers. I would love any feedback you have on my teaser. How could I make it better? Can my sim be any better? So I chatted with the guy for a while, and he was a huge fan.

3:36So we are influencing the business brokers of America on this podcast. Wow. Yeah, our reputation precedes us. Wow. Wow. Heather, what's the most famous place you've been recognized because of your acquisitions? Well, just a conference. But I just asked someone, hey, is this seat taken? And they turned around and I didn't know the person. They said, Heather? And I didn't know them. So I was like, yeah, but they just recognized my voice. So that was kind of cool. I got recognized at Chili's the other day. No, I'm just kidding. No way. All right. So I did find a deal that's very meta since we're talking about business brokers.

4:19It is a business brokerage itself. Yes. Oh. I love this. So let me pitch this to you guys. How meta is this? Did they hire a business broker to sell their business brokerage? It is websiteclosers.com. Oh, okay. All right. It's an M &A digital business brokerage, Shopify e-commerce store sale, 65 repeat purchase rate, 100 % organic, strong community reputation, and they've closed 230 deals. Wow, okay. The asking price... Are you sitting down, Bill? Yes, you are, because I can see on camera. The asking price is$14.5 million. Okay, I hope it's profitable. Which could be cheap. I did have somebody I talked to the other day who was interested in selling their business, and they won't tell us much about it.

5:11We're familiar with it. And, but the guy goes, it's$3.1 million. It's like, okay, that's a very precise number. And he's like, what do you think? I was like, well, it could be really expensive or really cheap or really fair. I don't know. So let's dig in. Um, $14.5 million for this digital business brokerage. $14.5 million. $8.6 million in sales. Earnings is$2.4 million. Um, website closers trademarked presents an M &A business brokerage specializing in the acquisition and sale of Shopify-based e-commerce businesses, operating within a clearly defined niche that has enabled rapid scale, strong deal velocity, and exceptional close rates.

5:48The company has developed a reputation for executing transactions with speed and precision, driven by a highly curated pipeline of sellers and engaged capital-ready buyer network. By focusing exclusively on cash-flowing e-commerce businesses, the brokerage has deep domain knowledge and expertise, allowing it to consistently match qualified buyers with high-quality opportunities while maintaining a disciplined approach to mandate selection. It operates under a performance-driven monetization structure that captures value through the spread between seller expectations and final transaction price, eliminating reliance on retainers, listing fee, or traditional commission models.

6:27This approach creates full alignment with transaction outcomes while reinforcing a culture centered entirely on closing viable deals. this is getting really interesting okay tell me more michael wait wait all right so pause pause pause yeah so this brokerage does not take success fees they somehow to ask you seller what you think your business is worth and then they're like if we can get more than that and you give us half or something is that's what it seems hearing heather is that how you hear this that is how i read it it's the difference between what they were expecting and what they get and it's not they're Describing that as not a commission, but I guess it's a different type of commission.

7:08Calculate it differently. Since inception, the company has completed more than 230 transactions, including over 85 in the most recent year, demonstrating both scalability and consistency in execution. Average revenue per transaction of approximately$29 ,500 supports strong unit economics, while deal sizes ranging from$25 ,000 to$500 ,000, primarily concentrated between the$80 ,000 and$200 ,000 amount attract a broad base of buyers targeting assets generating$5 ,000 to$100 ,000 in monthly profit. A significant portion of the sellers return for subsequent transactions reinforcing the strength of the brand and creating a self-sustaining pipeline of repeat business.

7:52So these are relatively small, Bill. These are not big shoppires. $29 ,000 revenue. What was the total revenue again? $8 million? $8 million. $8.5 million. So wait, how does that math work? They sold 8.6 million and they said they did 85 deals in the most recent year. So that's they must be doing the total 8631. I mean, divide it by 29 ,000 and that would be 300 deals. You know, if you divide the revenue by 29 ,000 which they said is the average revenue. I'm beginning to see why they hired website closers because Things are already getting a little shady.

8:34So if they did$8.6 million in sales last year, and they did 85 transactions, that comes out to$100 ,000 or so per deal of sales. And then I guess the average revenue per transaction is$85 ,000 times$29 ,000. Is that the math you're doing? No, they say the average revenue per transaction is$29 ,000. And so I said they would have to have done 296 transactions to get to 8.6 million in revenue. So that's the math that's not working. So I think they are, here's where I think this is at. I think they are taking the deal size, which remember, these guys are charging like a spread between the seller expectation and what it actually sells for.

9:24Let's say, Bill, you're right. They're taking half of the spread. And then they're counting that spread as their portion of that spread as revenue. And so if I take 85 deals from the last year, and they say here, average revenue per deal is$29 ,500. If I do 85 deals times$29 ,500 per deal, I get$2.4 million, which is what they say their earnings are. Oh, net earnings. Oh, I see. Maybe that's really their revenue. Maybe$2.4 million is what I would call their revenue. And they're grossing up the sales is the number of the sales price of all the businesses. But they only made gross of$2.4 million.

10:07Yeah, that's what it is. So it's really gross revenue of$2.4 million. There's, you know, obviously some costs. So, you know, even if they have a huge margin, you know, it's a margin of$2.4 million. Yeah. So$8.6 million here would be like total enterprise value. that they sold, of businesses that they sold. Yeah. If we're right, or this is just cuckoo. Well, and it's very cuckoo if$2.4 million is total revenue and they want to sell it for$14.5 million, because that makes no sense at all. Yeah. Okay. All right. Well, continue. Okay. So they make about$30 ,000 when they close a deal, and they've got this kind of spread over expectation sharing model.

10:54But there's a lot more here, actually, Michael. So tell us more. Seller acquisition is driven entirely through organic channels, including referrals, word of mouth, and a well-established digital presence that generates more than 1 ,000 inbound submissions annually. The high-volume pipeline enables selective deal intake, supporting a best-in-class close rate of approximately 92 % to 94%. On the demand side, the company has built a proprietary buyer ecosystem of more than 2 ,000 active investors, with weekly deal distributions achieving open rates exceeding 50%. Almost as good as our newsletter.

11:29You should subscribe, dear listener. This highly engaged audience drives liquidity within the platform with approximately 80 % of transactions now completed internally without reliance on third-party marketplaces. Paid search initiatives further enhance buyer acquisition while strengthening long-term control over deal flow and audience ownership. The brokerage manages the full transaction lifecycle including listing preparation, buyer qualification, deal structuring, contract execution, and transfer coordination. The operating model is highly systematized, enabling rigid transaction times, with many deals closing within 30 days, and some completing even faster due to pre-qualified buyer demand.

12:04The current infrastructure supports 35 concurrent listings and has demonstrated the capacity to scale significantly without proportional increases and overhead. The business operates with a lean structure supported by a combination of internal leadership, specialized contractors, and target external resources, allowing for efficient execution while maintaining flexibility. They have a strong emphasis, post-sale support, blah, blah, good reputation. Then there's some other stuff here about how to grow the thing. I don't know if there's anything here worth me talking about. The broker added their two cents, highly aligned performance-driven revenue model, proprietary network, scalable systematized platform, and so on.

12:42And the codename for this, Heather. This is my favorite part. I'm so glad you're not missing this. This is the best part of the whole thing. The codename for this, Heather, is named after your weekend at Waffle House after a party night out is Project Midnight Waffle. Okay. Amazing. Project Midnight Waffle. That's the best. That's maybe the best project name I've ever heard for a deal. I'm going to call it Project Broken Calculator right now. That's a mom joke if I've ever heard one. That's a mom joke. Let's go back to what I think is truly the unique thing here. Oh, they brought in the word spread.

13:27I brought it in and they brought it in themselves. The spread-based monetization structure that eliminates reliance on upfront fees while directly tying revenue to successful deal execution. So this idea that they talk to a seller. The seller says, I want$100 ,000 for my business. And these guys, Midnight Waffle, which, man, that would be awesome if that was a real name. Midnight Waffle says, well, we'll go try to get you a better deal than that, but we get half, let's say we get half of whatever we go above$100 ,000, right? And let's say they get$150 ,000, Midnight Waffle makes$25 ,000 because that's the difference between, half of the difference between$100 ,000 and$150 ,000.

14:05So how do we feel about this model? Like, Bill, first principles-wise, like, is this smart? I mean, they have a business that appears to be profitable. Anytime I see one of these, not even a business broker, but like a business that makes its money in a novel or cute way. I immediately go like, there's a reason that industries converge on pricing models, you know, for a bunch of reasons. And there's a, there's a reason that brokers end up with a success fee model. It's either because the customer just insists on it that way. And it's really hard to sell otherwise, or, you know, that's the only way the broker or the broker the business can protect itself there's usually a reason so i'm curious sort of how i'm surprised that they've made this work to a business of some real scale here i just think the spread model is so dependent on what the seller thinks their business is worth and definitionally the whole point of a business broker is that sellers don't really know what their business is worth so you're coming you're having you're kind of anchoring your ability to make money on what the seller comes in with and if you're a seller and you i mean you're obviously not stupid you know this is sort of how it is and you just go my business is worth a gazillion dollars and so like i just don't know how in practice you talk them down to a number that works and then do i want to be a buyer on this marketplace where the only way the broker gets paid is if i pay more than what the...

15:39Well, but that's always the case, right? I guess. It's especially the problem here, you know? It depends on who C you're in. It's a problem if you're a buyer, but maybe it's not such a problem if you're a seller. It's a problem for the buyer a little bit. Yeah. So with this, you know, there's this constant problem with... I mean, does this only work because the type of business they're doing is such a narrow niche? These are e-commerce Shopify businesses. And so it's e-com only. So they're taking away people with live storefronts. They're tiny. And there just happens to be a market of consolidators in this space at this point.

16:19Is that why this works? I mean, this works. These businesses are relatively small. E-commerce is sexy. You know, there are always people with SBA loans who want to buy businesses with or without SBA loans. I mean, with Thrasio and all the big Amazon aggregators kind of coming out of this market, you know, there's not the insane bid in this market that there used to be. But this market, heck, I built my business on the existence of this market way before Thrasio was a thing. So there is always a baseline of people who want to buy econ businesses. It's small deals and they're running 85 closings a year.

16:57That's seven closings a month. So it is pretty high volume, small ticket. and it seems like they've found a nice niche for how to at least take a small ticket deal and turn it into$29 ,000. You know, I think that's kind of intriguing and it seems like they've done that very successfully. They feel like they're probably too small for SBA loans. You know, most SBA business acquisition lenders, there are tiny SBA loans out there, yes, but most banks don't want to do a business acquisition loan that's, say, below$300 ,000 because it's just too much work for the amount of loan that they end up getting.

17:35So it almost feels like these are even smaller than that. Would this structure work for Acquire.com? Maybe. Our sponsor. Like, I'm just like, man, this is generating a lot of cash. You know, and Acquire is doing small dollar memberships, right? Like, that's a tough way to get to high ARR. But this appears to be the other end of the spectrum where these guys are taking$30 ,000 on 150 enterprise value deals. Like, I don't know. It's a good take rate if that's where it pencils out. I mean, maybe this isn't innovation in pricing, but here's the thing. Let's talk about sort of transferability of this business.

18:17Let's say they do have real innovation in pricing. There is nothing protectable about that. And, you know, now we're doing a podcast about it and they're going to sell this business. And like, if this gets pervasive, right, either the whole industry reprices around this way of pricing or, and even if that happens, then margins kind of compress probably to about the same VIG that business brokers take now. So I don't think that I wouldn't buy this business on like the long-term durable advantage of their different business model because it's pretty easy for any broker to price their services this way.

19:01So what am I getting when I buy this? Like Heather, I'm getting a brand name, getting a mailing list. It sounds like they do a fair amount of process work on the deal that they have obviously automated quite a bit or they wouldn't be able to afford to do, you know, 85 deals a year. However, I am going to say this. I still believe that this brokerage gets gross revenue of$2.4 million and they didn't tell us anything about their cost structure. So I am guessing that their cost structure is very efficient, but they may have people doing those processes too. But you're getting that. You're getting whether it's a team or a digital platform to run the process.

19:41And they are saying that 80 % of their closings are not dependent on a third-party platform, but that means 20 % maybe are coming through a biz buy sell or acquire or something like that. So they've got their own sales channel for at least 80 % of what they do, and they've got some systems in place. I think that's mainly what you're getting. Hey everyone, it's Bill. And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called Capital Pad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses.

20:15So Capital Pad is a marketplace for acquisition entrepreneurs, that is people who want to buy a business and need capital to list their deals and solicit capital from other people who want to invest in acquisition deals. So if you want to back somebody buying a small business, CapitalPad is the place to do it. And if you want to buy a business and need capital, you can go on CapitalPad to be introduced to investors. So the really great thing too from the investor side is that CapitalPad takes care of all of the details that can get hairy with small business acquisitions. They handle standardized terms, standardized governance, standardized distributions, all up front in black and white.

20:59Basically, Capital Pad professionalizes investing in small businesses, and the returns can be really, really good. I'm so stoked they exist. It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out CapitalPad.com and tell them that Acquisitions Anonymous sent you. Let's talk about the general concept of buying a professional services business, which is what this is, right? I mean, the person who owns this is probably the lead broker, the broker in charge, right?

21:40And that person is presumably going to go to the beach after they sell you their business, right? That's kind of the point of why they're selling it because they've been selling a bunch of businesses and they want to stop doing that all day, every day. so immediately kind of you have to be a business broker i would think because there's no mention in here of like you know a team of five brokers or like anything like that to me this sort of reads as this is a guy or girl and with some support but maybe not a lot because we don't even see a ton of expenses here if if we do have this sort of 2.4 million is listed as ebidabba kind of is the revenue.

22:18Maybe there's not a lot of expenses. So this is a professional who hustles hard, prices his services in a way, and clears$2.4 million a year, which is awesome. But I don't know if that's viable. I just don't know if it's transactable. And you need a license. It's not just that you're replacing this person in their hustle, but if you're a business broker, you need to be licensed. And they didn't mention that, but I think that's probably key here. Not just anybody can do it. All right. Stupid question warning. How licensed do you really have to be to be a business broker? And is it really enforced?

22:59Good question. I think this is where it gets tricky. Like a lot of licensing, I think it depends on the state where the business is located. And if these are all e-commerce, that becomes problematic because they're all virtual, you know? So I don't know like maybe it doesn't really get enforced in this case because it's not state uh located you know based but in some states you have to have kind of a real estate license and in other states you have to have a more specific license wait are you telling me that every business broker that i know that sells businesses all over the country is licensed in 50 states individually exactly they're not they're not no no no so is this like a nice to have you kind of like i mean i know you can't like be an investment banker and like actually do securities transactions but like there's without a license but there's got to be a scale here where you know you can help somebody sell their business and take a fee and you don't need a license gpt do you have any idea about this i just asked tech about texas uh we are in a non-licensure state for business brokers in practice you tend to either need to have a combination of a real estate brokerage license because real estate is so often part of these deals then there is also the issue of securities licensure so if you're advertising securities for sale there are things where you need to be you should consider being federally licensed as a broker dealer um so yeah that's what i know i think it's a gray area especially in that last part i think that the business broker uh groups or uh you know trade groups fought that last part uh pretty hard a couple years ago because it was going to be very difficult but otherwise it's usually real estate brokerage license and you're right if you're selling businesses in all 50 states nobody's going around and getting the real estate license i don't think in all those states i think it's is falling in a gray area.

25:04And for these small deals, you're probably, I guess you're probably safe. Um, you know, but there is a gray area there. You'd have to consider. Well, I'd have a question about what licenses I need or don't need. I'm going to assume that, I mean, no offense to all of our business broker friends out there, but based on all the business brokers I've met, the bar cannot be that high to pick up this life. I mean, there's a lot of realtors in the world too, is my point. Right? Like, we should be able to get, like, I should be able to get this license if I want to buy this business. It's not like master plumber that's going to take you like a whole bunch of years.

25:39That's true. Like, you take an online course, congratulations, the Universal United Church of Business Brokers, you know, online certification, you're a business broker. I did talk to a business broker the other day who, by the way, was shocked when I, you know, I was on the phone with him. I was like, thank you so much for answering my emails. Thank you so much for returning my phone calls. Thank you so much for being direct. And he was kind of shocked. He was shocked that I was thanking him for doing that because fundamentally I was just thanking him for basically being a normal professional, doing what you're supposed to do.

26:15And the bar is so low in his industry that he was kind of shocked I would say that. I was like, bro, you have no idea. So anyway, that's the anecdote about some of the folks in the brokerage space. It's an unprofessional space, which is why there's Alphi. Right? Yeah. If things ever go wrong, Bill, that's still your future. I've always said to my wife, if it really hits the fan, I could be a great business broker overnight. Okay, so this is a business broker listing their business. and they probably get pretty high multiples for these tiny deals. I'm not sure what the multiples would be for these tiny deals.

26:55I don't know. Low multiples. I don't know what they're getting. But they're asking six times gross revenue for this business. Yeah. I mean, the valuation, I just can't get my arms around. Yeah. And they're a business broker. So. I mean, even if the$2.4 million is EBITDA, cash flow, whatever. I mean, they're asking six, seven times here. if that was EBITDA, but I don't believe it is. And I mean, okay, let's say it's like a highly profitable, automated, really good margin, like repeat B2B services business. Like, okay, I can see that. But I have a feeling you're gonna pull the cover back on this thing and you're gonna see that this person is a key employee and they're about to leave.

27:38So like you're basically, he's trying to sell you his career for seven times annual earnings. And guess what? You're not him. You don't have his talents, his connections. This is just totally, unless there's something that is not in this teaser, this feels pretty untransactable to me, almost at any price. Right? I agree. I like how this person's core business is going around, they said they have 1 ,000 applicants per month or whatever to list their businesses, going around, parsing through those for people that are underpricing their 1 ,000 annually. There's 750 people a month, 800 people a month that are basically sending him deals.

28:25He looks for the 35 of them per month that I think are underpricing their business, and they don't understand how much it's worth. He takes it to market at that price and then takes the spread above it. So it's interesting that the meta aspect of this is the whole business is built on sellers who don't know what their business is worth. And here this guy's doing exactly the opposite by just pricing it in fantasy land. It's like, bro, read the room. It's like, no, I'm going to price this at seven times revenue and see if I can make it happen. And it's like, well, can't blame him for asking. But there is something here, right?