Knowing your agency valuation is crucial if you’re a digital agency. It gives you an idea about how much you should charge for your services (SEO, SMM management, PPC management, etc.
It’s a question agency owners often ask when selling their businesses. Knowing the right price can be crucial for anyone who plans to purchase an existing business.
It can be daunting to determine your company’s worth in today’s business environment. Many factors can affect its value. We are here to help you understand it all.
This blog is for all digital agency owners that want to evaluate their agency’s worth.
How to Determine Your Digital Agency Value
How do you calculate the worth of your digital agency’s services? The price of your digital agency is determined by how much someone will pay. You’ve worked hard to get here. You should also hold some value. It’s not possible to settle on a number that isn’t meaningful.
The actual value of your digital agency is one that accurately reflects your achievements and future potential. You need to understand the factors that influence the value of your digital agency if you want to get the upper hand.
You can justify the price by understanding the impact of each.
1. Profits and earnings
Making a profit is the main goal of any business. This should be your first concern. You need to examine your earnings history to determine the agency’s true worth.
A buyer doesn’t want to invest in a dead company. It is not worth taking the chance of investing in an unsuccessful initiative.
EBITDA is the measure of net profit. It stands for Earnings before Interest, Taxes, and Depreciation. It is the amount of money left over after expenses like rent and salaries are removed.
To determine the true value of your business, and the revenue it generates, you need to take into consideration SDE (Seller’s Discretionary Earnings). This will include both the income that you report to IRS and any other non-cash expenses.
Digital media companies typically sell for between 4-6x EBITDA.
2. Time in operation
Your agency will be more valuable the longer you have been in business. It’s quite simple. A company takes around 3 years to become financially successful. Your agency’s value can be affected if you do not achieve this milestone.
The longer you have been in business, the better your reputation and the more time it takes to build a client base.
3. Previous clients
It’s great to have well-respected businesses like Capital One and Dell Technologies under your name but it’s equally important for the valuation of your agency that you’ve worked with smaller brands.
Your reputation can be affected by the reviews and testimonials that clients leave. Your agency’s reputation will grow as it is well-respected in the industry.
4. Your agency’s current projects value will affect your agency’s valuation
A digital agency provides continuous services. A digital agency cannot terminate recurring, long-term contracts just because the owner changes. This could cause serious reputational damage.
The agency’s value can be affected by clients that are already in the pipeline. These projects can increase your value if they have high potential revenue. This is related to the next point.
5. Concentration of clients
In a few years, where will the agency be? If the agency’s workflow is growing steadily, it will be more attractive to invest in it.
A buyer might want to think about what will happen if the clients stop using the agency’s services or the contract is terminated.
Even though large, reputable companies have their perks, the revenue streams can drop if they leave. For the best digital agency valuation, it may not be wise to have any customer accounts that exceed 30% of your sales.
The number of existing contracts, client retention rates, and the diversity of mid-sized clients all have an impact on the valuation process as well as its growth potential. It is best to maintain the right mix of clients.
6. Digital marketing agencies’ valuations should be competitive to achieve this advantage
Scarcity can have a price. Your digital marketing agency in Los Angeles will be more valuable if you offer niche-specific services or unique technology that isn’t available elsewhere.
A buyer will be more satisfied with a well-established agency that has years of experience and provides services to a targeted customer in a particular industry.
This can be both good and bad. It could be difficult to obtain the value you desire if your services are too specific and not enough demand.
7. Structure of internal work
You are the brand ambassador for a digital agency. Although you might be part of the operations team, buyers will pay attention to how the work process is managed and what your role in day-to-day activities is.
Are you the sole manager of the agency or are there other managers?
This is crucial because the person buying your digital marketing agency in Las Vegas will want information about what will happen if you leave.
Different departments in a management structure can run smoothly even when you aren’t there.
To ensure that work does not halt, department heads will be still available. An integrated, structured agency with internal management is more valuable than a one-man operation.
It is important to consider the commitment level of key employees. What will it mean for them to stay on board after the sale? What impact will a sale or takeover have on the office culture?
8. Current market prices
Before anyone considers starting a digital agency they should research the current market price. Check the market price for your agency within the last six months to ensure you aren’t under or overvaluing it. Compare all factors that can influence the price of your agency. These include their size, the services they offered, and where they are located.
9. Economic conditions
Every business is affected when an economy experiences a recession. You, as a digital agency are also susceptible to devaluations in difficult times.
Your Digital Agency’s Value Increases
How can you improve the value of your Phoenix digital marketing agency now that you know how to determine its worth and what factors influence it?
You need to be more than interested in EBITDA as a percentage of revenue. The key to increasing the value of a digital agency is its ability to improve.
These are just a few of the many ways that you can add value.
1. Give it some time
These are the years when you are still learning and trying new things. Your value in Miami digital marketing will increase as you gain more experience.
2. For a better agency valuation, you should have a healthy profit margin
To make more profit, you must continue to work hard and find new ways. You need to make sure you are making 40%+ profit, regardless of whether you charge customers more or reduce operational expenses.
However, if your debt is still a problem, it’s time to get rid of it. Your value will drop if you are in debt.
3. Plan for steady growth
Companies that grow are more attractive to buyers. Profits increase. If a company is less than five years old and has revenue growth of between 30-50 percent annually, it’s on the right track.
4. Increase your client base for your digital marketing agency valuation
You will see more growth if you have more customers. There are pros and cons to having large clients. They can also negotiate for more services at lower prices, which reduces the profit margin. Increase your bottom line by finding more clients, especially small and mid-sized businesses.
If you plan to sell your agency, it is important to look into long-term, transferable contracts you can easily hand over.
5. Get more testimonials
Your reputation will grow the more people hear about you. It will be well worth it.
6. Find new revenue streams to increase the marketing agency’s valuation
Digital marketing is a wide-ranging field. You can offer many services. You can either diversify and offer more services, or you can dive in to provide niche-specific services.
Highly-skilled agencies often have higher value, especially if they can secure more accounts.
7. Establish management teams
Agencies with many people handling different processes and procedures have a higher value. This is because buyers have fewer roles.
8. Keep track of your metrics
Digital marketing is all about numbers. Monitor, measure, and evaluate key KPIs like lifetime client value, profit margin, or burn rate. This will help you identify your weaknesses and improve the value of your agency.
9. A large online following can be yours
Your brand and reputation can be built by creating quality content. Your agency’s value can be increased by having a strong financial foundation and specialized knowledge of the industry.
10. Make sure you have all your paperwork in order
It is easier for buyers to buy your agency and make it manageable, which makes it more valuable. It is important to ensure that they continue earning income throughout the whole handover/takeover process.
Sell a Digital Agency
Many digital agency owners aren’t ready to accept the reality that their new york digital marketing agencies have an expiration date.
It can be less stressful to have an exit strategy in place. This means ensuring your books are in order, not taking on risks, and keeping track of cash flow.
It can be difficult to sell a digital agency. It is important to plan a transition period. You can reduce the business’s value if you rush to close the deal.
You can help the new owner settle in by staying on board for six to twelve months. This will allow you to make plans for your next venture.
It can be helpful to know what you can expect. Below is a list of steps:
1. Facilitate the sale
Register your agency today or get in touch with a qualified business broker to help you get started.
2. Expression of interest
Anybody interested in purchasing your agency should make an initial inquiry. What happens next will depend on your answers. Although you must answer truthfully, it is important not to give too many details.
3. Let us know your intentions
A letter of intent will be sent to the interested party based on the digital agency valuation.
4. Get started with the legal work
Selling a property can be a lengthy process. A reputable lawyer can help with all legal documentation, ownership rights, taxation laws, and more.
5. Be on the same page
You will learn about the day-to-day operations of your company, key employees, clients, office culture, management criteria, and financials.
Offering transparent services can help build a spotless reputation and a list of satisfied customers. Knowing how to separate yourself from other agencies that are currently selling on the market is the first step to getting a better valuation for your digital agency
It all boils down to the way that you present your agency, and how you interact with others. Respecting others in trade is the best way to increase your self-worth. Are you ready for the evaluation?
