Valuation · June 2026
How to Calculate DLOM: a Practical Walkthrough
The discount for lack of marketability (DLOM) is often the single largest — and most challenged — adjustment in a closely-held business valuation. It captures a simple economic reality: an interest you can’t quickly convert to cash is worth less than one you can. The hard part isn’t the concept; it’s landing on a percentage you can defend. Here’s a practical way to get there.
1. Separate DLOM from the minority discount
Keep your discounts conceptually clean. A discount for lack of control (minority interest) reflects an inability to direct the company; DLOM reflects an inability to sell quickly at low cost. They answer different questions and are supported by different evidence — don’t blend them into one hand-waved number.
2. Anchor on benchmark studies
Two bodies of empirical research frame the range:
- •Restricted-stock studies compare the price of restricted shares to their freely-traded counterparts. Older studies clustered around 30–35%; post-1990 rule changes that shortened holding periods pulled observed discounts lower.
- •Pre-IPO studies compare private transaction prices to the later IPO price, generally implying larger discounts — but with more selection-bias caveats to acknowledge.
Use these to establish a defensible range, not to pluck a single number. The studies are your starting bracket; the subject company moves you within it.
3. Consider a quantitative model
Where you want a model tied to the subject’s own facts, option-pricing approaches (e.g. Chaffe, Finnerty, Longstaff) estimate the cost of the “put” that marketability would provide, driven by expected holding period and volatility. The QMDM instead discounts expected distributions over the holding period. These aren’t a substitute for judgment, but they show your number isn’t arbitrary.
4. Document the qualitative factors (Mandelbaum)
Mandelbaum v. Commissioner gives the checklist courts expect you to address: private vs. public sale prospects, the financial statement analysis, dividend/distribution history, company prospects and management, the size of the block, any transfer restrictions, holding period, and redemption policy. Walk through each, note which way it pushes the discount, and reconcile to your concluded percentage.
5. Reconcile and write it down
State your range from the studies, what the quantitative model implies, and how the Mandelbaum factors move you within the range — then conclude. A reviewer (or opposing expert) should be able to follow the path from evidence to number. That paper trail is what makes a DLOM defensible.
The Valuation Processor builds DLOM support — quantitative inputs plus the Mandelbaum qualitative factors — directly into your report, so the conclusion and its documentation travel together.
This article is general guidance for valuation professionals, not valuation, legal, or tax advice. Apply professional judgment to the facts of each engagement.