Good marketing can take a business from good to being unrivalled. The thing is, as much as every business needs marketing, not everyone does it well…hence the demand for marketing agencies. Nowadays, to meet to skyrocketing demand for good marketing, agencies are popping up left right and centre, all offering similar services. But does that mean they offer the same value? And when it comes to selling a marketing agency, how are they valued compared to other businesses?
How are marketing agencies valued?
At its core, a few aspects would primarily contribute to the overall valuation of a marketing agency. These aspects include the following:
1.Revenue and earnings
No matter what business industry you are in, revenue and earnings will always be considered when calculating the value of a business. Potential buyers would first want to determine whether your business is financially healthy.
Factors like more significant profit margins typically indicate that a business is in a good place financially, but this isn’t the only aspect that potential investors want to see. They would also like to know your expenses, losses versus profits, and how your money is spent.
For example, if you’re spending on redundant services, this may have an impact on the value you can get for your business. Ideally, you would want to try to strike a balance between profitability and operations.
2.Employees or a team
An asset that is commonly overlooked is your employees. If your agency has a strong team dynamic with employees who have been there for a long time, you may get a higher price. Consistent employees show loyalty and indicate a degree of workplace satisfaction. As a result, your business might get a higher valuation if you have a team of experienced employees, allowing the new owner to walk into a fully functioning team from the get-go.
3.Client basis
While every marketing agency might have its own take on how its business is run, clients are still at the centre of its operations. In addition to its financials on paper, the number and quality of clients at a marketing business will also be analysed and factored into its business valuation.
What you should try to avoid is being too reliant on one client. For example, if a large amount of your income comes from one source, this is a significant risk to the business if that source or client leaves the company. Businesses with diverse clientele generally do better when it comes to a valuation because there’s more security and potential for growth. If you are planning on selling a marketing agency, try to lock in a few clients before selling to improve its appearance.
4.Operations
As a business owner, building away from yourself should always be your goal. Let us explain. If the business is built in a way that it relies on you solely for most of its operations, then its growth would be linked to your capacity. Likewise, when you choose to sell the business, the new owner would need to lay the groundwork for the manager to come in or work in the same capacity, which they may not want.
The easier it is for a buyer to take over your business while it runs as per normal, the more they will be willing to pay for it. Document your company’s operations and try your best to streamline them. Look for redundancies and remove them. If need be, have a valuation done to highlight areas of your business that need improvement so you can work on them.
5.Defensibility
How future-proof is your business? The potential for future earnings plays a significant role in the valuation of a business. Consider the overall business model or services you offer. Will it still be profitable and needed in two to three years? For online work, technology poses both a benefit and a risk. For instance, as AI improves, would companies turn to paying for an AI model to do their marketing, or would the service you provide adapt? These are questions that need to be answered as they will be considered when valuing your business.
6.Niche
Does your marketing company specialise? Some agencies specialise in a specific sector of marketing, like digital media marketing or Search Engine Optimisation, while others offer a broad range of services. Some questions that would be asked about your niche would be:
- How big is your niche, and can it grow?
- Are businesses finding better services elsewhere?
- How much competition do you have/
- Is technology putting your niche at risk?7.Assets
Lastly, what tangible or intangible assets does your business have? Tangible assets would include items, land, or machinery, while intangible assets would be things like investments. The accumulated value of these assets would all play a role in how much your business is worth.
Where can you find a broker for your marketing agency?
Thinking about selling your marketing agency? then having a reliable and experienced broker in your corner is invaluable. If you haven’t found one yet, here’s a helpful page from Lloyds Brokers. Here you’ll find a team of professional business brokers with a great track record for selling businesses in Australia.
Final thoughts
Understanding how a marketing agency is valued can help you strategise to improve your business’ valuation price and get a better return on your investment. Furthermore, it can help you set more realistic goals and identify areas for improvement. Consider the value of your marketing agency and see where you can improve. And, if you need some help pinpointing where to focus your efforts, get in touch with a broker from Lloyds Brokers.
