Everything has a price. Even the agency that you’ve spent a decade building. Sooner or later, the time will come when you decide that it’s time to move on, and you start having conversations with potential buyers about selling your marketing agency.
As part of the conversation about selling your marketing agency, whether to a bigger group, or an internal management team, getting the right price is important. There are a lot of factors, both tangible and intangible that come into play when valuing any business. Setting the price to high will torpedo the deal, but going too low means missing out.
Marketing Agency Valuation
When you start talking about valuation of an agency business, you need to consider the internal and external factors. The specifics of your agency will vary, and so will the motivation of the buyer. As a result, there isn’t a formula which sets a one-size-fits-all valuation for a complex business, but there are key areas that the buyer will consider.
It’s More than Just Asset Value
If you were just selling the means of doing business, the value of your assets is a good place to start. Your assets will include your business premises, any equipment that you have, and any stock. Of course, your business probably isn’t as simple as physical assets, less depreciation and liabilities. There are also intangible things to consider – your brand, any IP, and the value of any contracts. A true valuation will need to consider that.
The Cost of Entry
A key part of determining the value of an agency is the answer to the question:
How much would it cost to build this business?
Over the lifetime of your agency, a lot of cost and experience have been invested in getting it to the point where a buyer is interested. If the alternative to buying you is to copy you, then your valuation should take those costs into account. The cost of entry will include:
- Start-up costs
- Recruitment
- Training
- Assets
- Product Development
- Marketing
When you are selling your agency, you give a buyer the ability to shortcut to your situation rather than building from the ground up. That has a value.
Multiples of Profit when Selling Your Marketing Agency
In a transaction, the buyer wants to know how quickly they will get a return on their investment. As a result, they will look at the profit to earnings ratio.
The amount of profit your agency makes will change over time. If you’re being acquired by a larger group, cost savings through efficiency may increase that ratio. Under this model, a multiple of current and projected profits will be used as the valuation of the agency. The multiple used will be dependent on the wider economy and the prospects for your agency to grow and become more profitable in future.
If you’ve been scraping by on a very low margin, and there are not prospects for high profit in the future, the multiple – essentially the amount of time needed to pay back the investment – will be low. If you have high profit, and the potential for more in future because of the state of your niche, then a higher multiple is likely.
The Intangible
Beyond pure assets and numbers, selling your agency also means selling your relationships. This is where goodwill comes in. If you’re a reliable, well regarded, and award-winning agency with long term clients, the business value may be higher than a bigger but weaker business.
Measuring these factors can be difficult, and the impact on your valuation will be dependent on the market at the time of sale.
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