What Are You Doing to Secure Higher Market Value for Your Agency?

Let me quote the former founder and CEO of a successful agency which I’ll leave anonymous this time around: “At some point – even if you don’t plan on selling your business – you’d like to know how much this thing you’ve built is worth.”

Which begs the question: do you know the market value of your agency?

If not, you should. For a number of reasons, but I’ll mention two.

One reason is to understand your agency’s scalability and growth potential. Another is to leverage the knowledge of its value.

From January to June 2023, agency business valuation data was gathered from 796 agencies through a questionnaire launched by Productive. The detailed survey included 13 questions on revenue, EBITDA, growth, business development and data consolidation.

Though the research will be fully published in fall 2023 (stay tuned), a few interesting findings arose when looking into the top 5% of agencies with the highest valuations and annual revenue above $1 million USD:

• The majority of these agencies had diversified client portfolios. More specifically, 57.1% of them had less than 10% of revenue represented by their largest client.
• Most of these businesses (33.3%) have both outbound and inbound strategies in place, or established business development teams owning sales with the support of founders (33.3%).

Creative service businesses are clearly looking into ways to diversify clients to secure cashflow, while top performers are aware that client acquisition opportunities won’t fall from the sky.

We know, it’s all easier said than done. At some point, though – that strategy workshop will come, and getting an estimate of your agency’s business value can shape the future conversations you’ll have, as well as the course of your business growth.

Some of the fundamental questions agency owners ask themselves when entering the world of valuations are:

• What are the key factors that influence my agency’s valuation?
• What documentation or financial data will I need to get an initial estimate?
• When is the right time to sell my agency?

When asked what advice he would give to an agency owner if they want they want to build their agency with a mind of selling it in the end, Michael Seidler, CEO of Madison Alley Global Ventures says: “Secure EBITDA margins close to or above 20% and establish a diverse portfolio of long-term clients. Offer modern capabilities such as data-driven marketing, commerce, analytics, AR/VR, applying AI/ML, etc. Find a path to over $3-5 million EBITDA and ensure blue chip clients.”

There’s enormous interest in mergers and acquisitions in the digital agency space at this moment. Does your agency have a strategy in place for enhancing its market value?

If you’re interested in taking a first step into the realm of agency M&A, fill out the Agency Valuation Calculator. Once you get an estimated valuation, let us know your thoughts and feedback.