So you plan on selling your agency. Or maybe you’re just thinking about it. But even if you’re just tossing the idea around, knowing your agency valuation should be important to you right now. Otherwise, what exactly are you basing your rates on?
But listen, if you are planning on selling your agency at any point — it’s crucial to know your valuation. The alternative is letting your buyer determine it for you (yeah, not a good idea). So where do you even start? Honestly, you probably should’ve started yesterday. But it can be intimidating trying to figure out your own company’s value. This is exactly where tools like Metric.ai make tracking and understanding all your finances way easier, and a lot more accurate too. Feel free to check it out.
But in the meantime, there are a few key aspects you need to know when figuring out how much your agency is actually worth. So let’s dig in.
Determining your Agency Valuation
Value is driven by the expectation of future profit. What this means is that your buyer wants to know the amount of “Owner Benefit” they’ll get from your business in the future based on its past performance and current capabilities.
The most common way to figure this out is Profit x Multiple.
And the value you’ll typically use for calculating profit in this case is EBITDA.
EBITDA x Multiple
EBITDA stands for “Earnings before Interest, Tax, Depreciation and Amortisation,” which is basically how much money you’re bringing in vs. how much of it you’re spending (on salaries, insurance, rent, etc). But your buyer also wants to know about that Multiple. Because that number has the impact to change your Profit in a lot of ways — good and bad.
That Multiple is all the unique aspects of your business that may be valuable factors depending on how you decide to sell your company. If you’re just selling the core of your business, buyers may only care about your financial health, but if they’re acquiring your team and operations, there’s a lot more to consider. For example, perhaps you’re in a very niche market that brings in special clients who are only willing to work with you. In this case, your multiplier will be higher.
Here are some more examples of Multiples that will determine how much your marketing agency is worth…
All of these items require a deeper understanding of your finances when it comes time to sell. And the earlier you know them, the better you can position your business to get the best price possible.
But there are other important factors — not so much directly related to your finances — to consider too:
To give yourself the best chance at getting top dollar for your agency, you have to know your own value before your buyer does. All of this data can get complicated, which is why Metric.ai made a platform that makes it a lot easier. To learn more, schedule a demo today.