Scribd
Upload
50 views20 pages

Agency Valuations

The document discusses how agencies are valued using multiples of annual earnings or revenue, with larger agencies receiving higher multiples. Agency valuations are determined by considering factors like revenue source, niche, management structure, growth potential, business development process, contracts, client concentration, client retention, reputation, and willingness to assist with transition.

Uploaded by

Benny Rubin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
50 views20 pages

Agency Valuations

The document discusses how agencies are valued using multiples of annual earnings or revenue, with larger agencies receiving higher multiples. Agency valuations are determined by considering factors like revenue source, niche, management structure, growth potential, business development process, contracts, client concentration, client retention, reputation, and willingness to assist with transition.

Uploaded by

Benny Rubin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 20

THE BASICS OF

AGENCY
VALUATIONS
AGENCIES ARE VALUED
USING TWO METHODS:
Multiple of Annual
Earnings 1 2 Multiple of Annual
Revenue
The size of your agency will have a big
impact on how much it’s worth to buyers.

THE BIGGER
THE AGENCY,
THE BIGGER
THE MULTIPLE.
FOR THE SAKE
OF VALUATIONS:

“EARNINGS” “REVENUE”
is determined by how much money your is determined by how much money
agency is making (net income). We will your agency bills each year, minus any
add back in any personal expenses, taxes ad dollars that you’ve covering on
or interest that you’re paid out of the behalf of your clients.
business to come up with a final number.
If you’re growing at 30% or more year over
year, your valuation will use numbers from
the trailing 12 months.

+30% +30% 30% 30% 30%

2017 2018 2019 2020 2021


If your numbers are steady or you’ve
had a down year in the last 3 years, your
valuation will average the numbers
from the trailing 3 years.

2019 2020 2021 AVERAGE


If your agency is doing

UNDER $5M
in revenue, your valuation is between the following range:

2-4 EARNINGS or 0.8 - 1.3 REVENUE


If your agency is doing

BETWEEN $5M - $10M


in revenue, your valuation is between the following range:

4-6 EARNINGS or 1 - 1.5 REVENUE


If your agency is doing

BETWEEN $10M - $20M


in revenue, your valuation is between the following range:

6 - 12 EARNINGS or 1.3 - 2 REVENUE


OKAY, SO THE QUESTION IS, HOW
DO YOU DETERMINE WHERE YOU
FALL WITHIN THE MULTIPLE RANGE?
1.

PROJECT CONTRACT

VS RETAINER
REVENUE:
The way that your agency makes money and
the structure of those contracts is an important
piece of the valuation puzzle. Retainer based
agencies sell on the higher end of the valuation
range, whereas project based agencies sell
on the lower end.
2.

NICHE:
Generalist agencies that do everything
for everyone are not as valuable as
those that are hyper-focused. If your
agency has a specialization in a certain
industry or if the service offering you
provide is uber-specific, you’ll be more
sought after by buyers - which puts
you on the higher end of the valuation
spectrum.
3.

MANAGEMENT
STRUCTURE:
For agencies of any size, the structure of the
management and leadership team is a
crucial valuation factor. The more robust the
management team (assuming they will stay
on board post-transaction), the higher you’ll
find yourself on the valuation spectrum.
4.

SCALABILITY
& GROWTH
POTENTIAL:
Is your agency ripe for scaling or will it
require significant changes to do so? If
your agency is able to quickly scale-up
without changing the basics of the
business, this will put you on the higher
side of the valuation multiple.
5.

BUSINESS
DEVELOPMENT
PROCESS:
The more robust the business
development process within your
agency, the higher your valuation.
Ideally, your agency has a solid strategy
behind both inbound and outbound
sales. If you’re relying strictly on word of
mouth and your stellar reputation, this
has a negative impact on your
valuation.
6.

CONTRACT CONTRACT CONTRACT


CONTRACTS:
Regardless if your agency is project-based
or retainer-based, having contacts that
confirm your revenue is super important to
your valuation. If you don’t have contracts in
place for the work you’ve done in the last 24
months, this will have a negative impact on
valuation. If you’re a retainer based agency,
button up your current contracts and try to
extend the length of time. Yearly contracts
are more valuable than those with a 30-day
out.
7.
$
$ $
$
$

CLIENT $ $ $

CONCENTRATION:
$

$
$ $

If you have a client that makes up more than $ $ $ $


10% of your total revenue, this will have a
$ $
negative impact on your valuation and you’ll $
find yourself on the lower end of the $ $ $
valuation spectrum.
$
$
8.

CLIENT
RETENTION:
If you have clients that have been with
your agency for quite some time, and
you can clearly identify your churn
rate, awesome! This has a positive
impact on your valuation. If you’re
constantly churning and burning
through clients, more focused on
getting the next client than keeping
your current clients happy, this will
have a negative impact on valuation.
9.

REPUTATION:
What does someone see when they
Google you or your agency? What do
your clients and employees think of
your agency? Having a stellar
reputation in your desired market has
a positive impact on your business
valuation.
10.

TRANSITION
PLAN:
Buyers want to purchase agencies from
sellers who believe in the long term viability of
the agency. If you’re a seller who wants to be
completely out of the business in 90 days,
this can have an impact on your valuation. If
you’re open to a longer, more robust
transition plan, this will have a positive
impact on your valuation.

You might also like