How to Grow The Value of Your Marketing Agency Without Raising Revenue
Top-line growth is only one end of the P&L statement. Agency owners that are not just sales-minded but understand operations just as well, know that their margins can be improved elsewhere too. Although an early-stage agency will need revenue to demonstrate traction and proof of concept, a company with enough track record – and one that is looking to sell – needs to do better than that. EBITDA will take center stage for a buyer looking under your financial hood – and there is plenty of ways to raise the roof on your EBITDA without having to drive sales. Especially in the current market environment that is still demonstrably shaken up by the ongoing pandemic, structural readjustments and remote work are redefining operations. If you are looking to drive up your bottom line as you line up a sale, we recommend you take a closer look at our five hacks to grow the value of your marketing agency without the need to raise revenue.
Five Hacks To Grow The Value of Your Marketing Agency
The Roof Overhead is an Overhead
Office leases, in particular, are dead weight in the current market environment. Long leases are not integral to the business of most marketing agencies – something that is especially obvious since 2020 and the proof of remote work as a key component of agencies in the digital age. As tools to work remotely become smarter and employees become more accustomed to them, it is worth reconsidering if that office lease or that prestigious address on the business card are worth their costs. No less, co-working spaces, insofar as they are open for business, offer a smart and flexible alternative. Why not survey your team to see how many days a week they would be happy working remotely and scale down accordingly?
Automate Where You Can
Automation and streamlining are essential ingredients to your margin improvement. Revisit your processes, workflows and operational architecture to check on where there is still room for automation improvements. Tasks that should raise the automation flag include tasks that involve compliance and audit trails, that require multiple people to execute or that are especially time-sensitive.
From invoice generation to time tracking and from automated workflows to streamlined communication through project management tools with automated notifications, the world of process automation is yours for the taking. Things to keep in mind are that no tool is a cure-all and any tool is only as good as its implementation. Set goals, assign accountability and measure your results over time. Your reduced likelihood of error and improved productivity will work its way into your margins in the medium to long term.
Improve Your Brand & Increase Prices
When was the last time your brand got a shake-up? Are your website and your logo still a little too close to when you first launched? It shouldn’t take a Fortune 500 company in the public eye to make rebranding relevant. Give your look and feel a lift that will strengthen your positioning as you gear up a sale – and that can help you justify giving your prices a lift along the way.
Invest In Your Team
Most importantly, take a good look at your team. They will be the ones carrying your agency not only over – but past – the finish line as you execute on a potential exit. Who are the top-tier candidates that will shoulder your agency and drive the marketing agency at this critical juncture? Invest in these individuals and shed any excess weight as you close in on the valuation home stretch and grow the value of your marketing agency.
Future-Proofing In Times of Crisis
It may be a cliché, but that doesn’t mean it’s not worth taking note: there is opportunity in crisis. Even if you are not looking to make a sale just yet, these are things you can do to improve your operational resilience. Take advantage of the current reshuffle. Let it serve as an eye-opener as to how to cut costs and restructure your agency to help bring the value of your marketing agency to where it needs to be so you can turn it into a listing no buyer would overlook.
Think Like A Buyer When Evaluating Your Digital Marketing Agency
Did someone say, “seller’s market”? Yes, indeed, we did. Now, does that mean your agency is automatically at the top of every potential buyer’s list? Unfortunately, not. Or, “thankfully not”, is what we ought to be saying since making the right kind of match happen is where long-term success rests. In other words, long-term success is about making sure that you don’t even begin the buyer-seller dance with buyers who aren’t suited for your offering. So, how can you make sure that there is an alignment of offer and potential buyer, how can you improve your digital agencies valuation, and finally, does your agency offer what a buyer wants?
Think Like A Buyer When Evaluating Your Digital Marketing Agency
We’ve put together a list of key items that will entice just about any agency buyer, and that an agency owner can consider as transactional glue on their way to seal the deal.
Retainers Over Projects: Retainers spell income visibility. Projects, while potentially lucrative in the short term, also spell potential volatility. To keep them coming in, the required sales effort and associated costs add to the challenge of making a dependency on projects look like an attractive prospect. Of course, a mix of both is not in and of itself unattractive, but keep the balance solidly tilted on the retainer side. Pay special attention, all you SEO and PPC agencies, as this speaks directly to your business model.
Year-Over-Year Growth: This isn’t Silicon Valley, and your agency is not a SaaS startup. Agency buyers are not the VC types looking for triple-digit percentages growth. Steady does it – because steady growth means managed growth. It means your growth was not part of a fad or a fluke. And it means that your growth is not only sustainable but responsible. Growth is not an isolated metric; it’s tied to everything from hiring and overheads to your value proposition and your sales cycle. When all these things are in line, your year-on-year growth will be a sign of stability, skill and success.
Sustainable Margins: In line with this kind of well-managed growth, come sustainable and reasonable margins. Reasonable because repeatable. No buyer wants one-off success. Buyers are looking for structured businesses, not side gigs. That means functioning operations and an engine room that keeps churning out an EBITDA of 20-35% – with some margin for crisis-based deviation.
Processes Over Relationships: Processes mean success is business-owned and won’t leave the business as an owner takes their final bow. Success that is tied up in specific relationships, is not transferable – and not repeatable. Think of it this way: can a new owner, with the same skills as the current one, continue to scale your agency? That’s your litmus test right there.
Challenge Yourself to a Pre-Mortem and Improve Your Digital Agency Value
There are plenty of buyers available on the market right now, so that won’t be where the failure to sell your agency lies, so challenge yourself to this pre-mortem scenario: it’s 6 months from today and you weren’t successful in finding a buyer in spite of actively trying to sell your agency. What did you do wrong? Turn our buyer’s wish list into your seller’s checklist to improve your digital agency value and make sure your agency’s offering is aligned with what buyers are after.
Six Ways An M&A Advisor Can Help You Sell Your Agency
Are you preparing to sell your digital marketing, PR, or Ad agency and considering hiring an M&A advisor? If you have never put a business on the market before, your head will likely be ringing with questions like the following:
- How does the sales process work?
- How do I value my agency?
- How do I identify my ideal buyer?
- How do I get the word out about the sale?
- What will it cost me to sell my business?
Once these questions start falling in your mind like rain, you’ll hear a great crack of thunder as a final question strikes you like a bolt of lightning:
“Do I even need an M&A advisor? Why not just take this to market myself?”
Before you decide to put your agency up “For Sale by Owner,” you should be clear on the expertise – and dare we say value – an advisor brings to the table. After all the work you’ve done to build a business that’s worth selling, you owe it to yourself to make an informed decision.
That’s what this article will do: provide the information you need to decide for yourself. So let’s go for broke (pun gleefully intended) and dive into just what it is that M&A advisors do.
Valuation
If there’s one thing you should know about valuation, it’s never to take it at face value. There are many paths to determine the market value of your agency before you put it up for sale. But not all of them are worth their salt.
Let’s say you’re a service-based business, such as an agency. In that case, a valuation based on the value of your physical assets makes zero sense. Other methods that rely on fuzzy factors such as goodwill can also steer you down the garden path.
The truth is, an agency’s value may differ depending on context and the needs and preferences of buyer and seller.
So how do you climb out of the subjectivity hole and get a meaningful valuation? For starters, you can have a chat with an expert on business valuation – your friendly neighborhood M&A advisor.
He or she will likely combine a variety of valuation methods, each of which is weighted and prioritized according to your market, industry, business model, and financials. At Barney, for example, we consider 14 different factors, starting with your year-over-year earnings.
Sound like higher mathematics? It’s really more a cocktail of experience and good sense. However your advisor shakes the tumbler, the result will be far more accurate than a valuation based on a single method only.
Do not underestimate the power of accuracy. A listing price that reflects the true value of your business drastically increases your chance of getting a desirable offer from a buyer.
Confidentiality
Do you know the saying “discretion is the better part of valor?”
Actually, the saying is “valor is the better part of discretion.” But let’s leave our Shakespeare at the door and just point out what every M&A advisor knows: discretion is the key to a sweet deal.
If you are selling your business independently, maintaining confidentiality can be challenging. You will face many temptations, from spilling the beans to an employee whose career prospects are dear to you, to being loose-lipped with a vendor, who may leak word of the sale to a competitor.
Pitfalls and pratfalls like this can destroy a deal before it’s sealed.
An M&A advisor knows the value of discretion and the meaning of the word “mum.” He or she will keep your sale strictly confidential and ensure that information is released on a schedule rather than a lark.
Marketing
Selling your business on your own has its attraction. You can take all the credit if the sale goes well, and you get to keep all the money.
However, you might not have factored in the marketing costs and resources that a successful business sale requires.
From email campaigns to direct mailing, online advertising, social media marketing and word of mouth, the marketing muscle you will need to flex to receive your desired asking price can be massive. If you’re not careful, you’ll find yourself feeling the burn.
This is where a advisor can be a lifesaver. A seasoned M&A advisor has access to networks of buyers and databases beyond your wildest dreams.
Tapping into a advisor’s marketing capabilities can save you time, energy, and money. It can also help you reach your ideal buyer. That means a better deal and a better night’s sleep.
Negotiation
Is negotiating with lawyers your idea of fun? Then by all means, go it alone when selling your business.
However, if you prefer to outsource legal wrangling to those who know the rules and regulations and can handle smooth-talking attorneys, an M&A advisor is the way to go.
That’s right – we said attorneys. Often you’ll be dealing with more than one. An experienced advisor knows the ropes and won’t get rattled when the buyer’s and seller’s attorneys go head to head.
Another legal area in which an M&A advisor can make your life easier is lease negotiation. If a buyer needs a new lease for your business location and you botch the discussion with the landlord, the deal could fall apart.
In such cases, having an advisor handle the negotiation can give you a new lease on life (yes, we own that pun, too).
Financing
Speaking of puns, you can bank on an M&A advisor to have solid banking contacts. If your buyer needs financing to purchase your business, using the wrong lender can cost you months and imperil the sale.
Advisors are well versed in which lending sources to tap for which transaction and spend their careers building reliable contacts in the world of finance.
You may be great at financing a business. But this knowledge won’t always apply to your buyer’s situation. An advisor will know exactly who to call – and how to make, not break, the deal at hand.
Emotional Support
Last but not least, taking a business to market is an emotional roller coaster ride. There’s more at stake here than when you’re selling your tamagotchi collection (and that’s saying something).
When emotions get high – be it during legal haggling or at the closing table, an experienced M&A advisor can provide perspective, empathy, and support. Whatever issue you encounter, your advisors has been there before and can guide you through the haze.
That can’t just get you to a sale. It can keep you out of the looney bin.
That’s a Wrap!
Now that you know what an M&A advisor does, you should have a good grasp of the advantages of working with one. We’re happy to offer more reasons – or to help you sell your business. So don’t be a stranger, hear? Connect with us 🙂
Buying An Agency: Which Type Is Right for You?
So you’re buying an agency … congratulations! Marketing agencies (especially digital agencies) have never been in greater demand, and your chances of success are high – especially if you acquire an agency with a strong reputation and healthy customer base.
If you have never owned a business before or are new to the agency world, you might be wondering which type of agency to target. The sector is dynamic and constantly changing (perhaps this what attracted you to it in the first place).
This article will provide you with an overview of the types of digital agencies you have to choose from. Just as importantly, it will recommend some actionable steps for figuring out which of these categories is the ideal fit for you – whether you’re purchasing a business for the first time, or already own a successful business and want to add another to your portfolio.
Zooming In: Types of Digital Agencies by Service
There are many types of agencies, from service- oriented and vertically integrated to pure marketing SaaS and many more.
Before we walk you through some practical tips for deciding which business to buy, let’s examine three categories of digital agency and the potential upsides of purchasing them.
The industry is exploding with ideas and growing exponentially, so we won’t attempt a comprehensive categorization. But the following are well established, distinct subtypes with high product-market fit and thriving demand.
Sounds like a good place to start, right?
SEO Agency
The SEO (search engine optimization) agency is one of the largest digital marketing agency subset. This type of agency has defied the odds to thrive in a changing marketplace.
The fact that we probably don’t need to tell you what an SEO agency does is solid proof of how firmly the concept of SEO has taken root in the public consciousness.
Buying an SEO agency has its advantages: the process of constantly making and testing changes to the design of clients’ websites means recurring business in addition to high average monthly income.
Another plus for those with existing companies: owning a business whose business is helping other businesses’ visibility has the opposite effect of making your company invisible.
Social Media Marketing Agency
Can you say “viral?” Social media marketing firms are a bit like the SEO agencies attractive younger siblings – though they now have target audiences in every age demographic.
As you can guess, these agencies market their clients – and often themselves – on social media networks such as Facebook, Instagram. TikTok, Twitter, LinkedIn, Snapchat, and Reddit. Most of them also use blogging and offer some degree of influencer marketing.
Growth is baked into the business model of this type of agency. If you buy one that is good at upselling new platforms to its clients (see TikTok above), you might even be able to scale your services.
As with SEO agencies, social media marketing agencies are useful investments for buyers who already own a business and want to get more visibility for it.
Lastly, as the name indicates, these agencies are social animals. Establishing and nurturing strong relationships with their clients and their clients’ clients is what they do best. This makes for excellent client retention, which in turn means healthy recurring monthly revenue.
PPC/Inbound Agency
This last type of digital marketing agency we’ll cover is a different kind of beast, but a very friendly one. The name of the game for PPC/inbound agencies is inbound marketing focused on generating ROI (return on investment). Once considered avant garde, in 2020 these agencies are growing like bananas from Chiquita.
The companies they serve demand results and these agencies specialize in it. The most successful and desirable ones to purchase have built incredible efficiencies through API’s of great software or even built their own SaaS to close the gap on demand and results.
Knowledge of current clients, client retention rate, and retainer revenue vs. project revenue are uber important when comparing agencies for sale of this type. Do they churn and burn or nail it nearly every time?
Inbound agencies are terrific investments for both beginning and experienced buyers. These businesses tend to be scalable, and as such can provide revenue and growth for years to come.
Buying an Agency for First-Time Buyers
Are you a first-time buyer? Every buyer is different and brings his or her own passions, skills, experience, location, and financial standing to the negotiating table.
Your first step in answering this question should therefore be to consider all of these unique factors and make sure that a digital agency is a good match for them. Hint: the more flexible and creative you are, the better!
Step two is to drill down to find the right type of digital agency. Try browsing agency sales listings and filtering for agency type, price, revenue, net income, and age. This will give you a feel for the market and provide a springboard for a conversation with a broker or M&A Advisor.
Agency Purchase for Seasoned Business Owners
If you already own a business, you probably already know what kinds of businesses are compatible with you. But what about the various types of agencies? This is where it gets more complicated.
To start with, you should determine what type of agency would combine well with your existing business. Think in terms of synergies. Which agencies will enable you to up-sell services from your current company, and vice versa?
If you have already narrowed down your search to specific companies, compare each ones’ employees and ask yourself: which complements or augments the capabilities and personalities of those who are already on my payroll?
Browse our businesses for sale to get ideas for how to grow your business through buying another company. It could be a geographical expansion or an expansion of products or services offered. Weighing all of these factors will guide you towards the perfect business purchase.
If your budget allows, consider our buy-side acquisition services. Our clients hire us to uncover direct-to-founder opportunities for acquisition and manage deals from start to finish. If you’re looking to buy a marketing agency, we can help you.
That’s a Wrap!
To sum up: digital marketing agencies come in numerous shapes and sizes. The tips in this article will help you identify which one is the perfect purchase for your needs as a business buyer.
Once you’ve done so, it’s time to talk to us. We’re here to help you succeed! It’s why We Are Barney.
Shifting Your Mindset For A Success Agency Acquisition
You’re not the judgmental type. You’re out to get the most value from an agency acquisition and you’ll give the highest bidder the benefit of the doubt. But this type of buyer prospect rubs you the wrong way.
