We help entrepreneurs understand the value of their digital marketing agencies.
Digital marketing agencies with unique revenue models, geographically dispersed clients, and rapid growth require curated valuations. Most banks and M&A teams don’t have a true understanding of what impacts digital marketing agency valuations. Did we mention getting a formal valuation the “old school” way can take months? We know this doesn’t work, so we decided to do something about it.
We’ve developed a proprietary algorithm that accurately measures the financial and non-financial factors that impact an agency’s value. With unparalleled industry expertise and unmatched access to market comps, we’re able to provide the most accurate digital marketing agency valuations to entrepreneurs of all shapes and sizes.
We outline the factors that go into digital marketing agency valuations.
One-Time Project vs Revenue:
The way your agency makes money and the structure of those contracts is an important piece of the valuation puzzle. Recurring revenue-based agencies sell on the higher end of the valuation range, whereas one-time project-based agencies sell on the lower end.
Niche:
If your agency has a specialization in a certain industry, or if the services you provide are hyper-pecific, you’ll be more sought after by buyers – which puts you on the higher end of the valuation spectrum.
Agency Types:
The type of agency has a big impact on where you fall within the valuation range. Those industries which are reviewed as recession proof and have consistently performed during historical economic downturns are more valuable to buyers than up-and-coming industries or those significantly impacted if the market takes a hit.
Management Structure:
For agencies of any size, the structure of the management and leadership team is a crucial valuation factor. A robust management team (assuming they will stay on board post-transaction) will be considered valuable to a buyer.
Scalability & Growth Potential:
Setting up your agency to be able to strategically scale its revenue or EBITDA is a crucial factor for determining its valuation. Showing that your agency historically has, and can continue to, keep up with market demands, improve efficiency, and increase profit margins is an important piece of the valuation pie.
Business Development Process:
The more well-defined 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.
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
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 your valuation.
Reputation:
What does someone see when they Google you or your company? What do your clients and employees think of your agency? Having a stellar reputation in your desired market has a positive impact on your agency valuation.
Transition Plan:
Buyers want to purchase agencies from sellers who believe in the long-term viability of the company. If you’re a seller who wants to be completely out of the agencies in 90 days, this can have a negative impact on your valuation. If you’re open to a longer transition plan, this will have a positive impact on your valuation.
The “old school” process for valuing agencies wasn’t working, so we’re rewrote the playbook.
Understanding your digital marketing agency’s valuation is the core of an acquisition strategy. It allows founders to identify the most strategic time to sell and offers a benchmark for understanding the financial return on your countless hours of hard work.
Step 1: Kick Off Call
We want to understand the full picture – what makes your agency so successful? Meet with our team to share the story of your agency and help us craft the narrative around your value proposition for potential buyers. We’ll review how digital agencies are valued to ensure you are armed with all the information you need to understand your value in the market.
Step 2: Determine Adjusted EBITDA
Our team will analyze your financial data to develop an adjusted EBITDA considering any add-backs, one-time costs, owner’s expenses running through the business, and any other outstanding factors to ensure you are getting the highest return for your hard work.
Step 3: Determine Multiple
We assess your agency’s qualitative factors from our kick off conversation to determine where you fall in the multiple range. Attributes considered include:
Founder Transition Timeline
Revenue Structure
Service & Industry Niche
Management Structure
Scalability & Growth Potential
Step 4: Prepare Valuation Materials
We put our findings into a detailed visual presentation to showcase your agnecy’s value and arm you with the knowledge you need to make strategic decisions for an acquisition. Presentation documents include:Financial Summary & Valuation – We take a deep dive of the quantitative factors that impact your valuation and determine the best-fit multiple for your go-to-market strategy.
Agency Scorecard – We discuss the unique qualitative factors that make up your agency and contribute to the valuation multiple.
So, what's next?
Connect with our team to learn more about the M&A process for digital agencies.
Relationships Come First
At Barney, relationships are our most precious resource. We support entrepreneurs throughout the entirety of their career – from start-up or purchase through a sale or strategic exit. We’re more than M&A advisors, we’re strategic partners that believe in being boldly different.