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Your Complete Guide on How to Value Your Digital Marketing Agency

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A digital marketing agency creates and shares content using a range of digital platforms. They advertise services, products, brands, and businesses using a combination of online outreach and marketing approaches, from social media to SEO. If you have your own digital marketing agency, it’s essential to be able to value it correctly – and to know how this industry values its agencies. The size of your agency will have a huge influence on how much your business’s work is worth to its clients, and how much money you can sell your agency for if you ever choose to take the plunge. 

Larger, more financially successful agencies sell for higher EBITDA multiples because they pose less risk to potential buyers, while smaller agencies tend to fetch a lower price. Your EBITDA multiple is an excellent indicator of your agency’s value, along with a range of other metrics that determine your agency’s worth.  

Thinking of selling—or buying? Here’s everything you need to know. 

Understanding the Value of Digital Marketing 

Full-service digital agencies offer a wide range of services, including web development, SEO, content marketing, social media channels, email outreach, paid online ads, and much more. They also offer strategic services and design and development services to help their clients meet all their digital marketing needs. 

Digital marketing services offer a wealth of benefits to clients too, including increased brand awareness and recognition, enhanced sales, better customer relationships and retention rates, and positive ROI rates on their marketing budgets. When it comes to measuring the efficacy of digital marketing efforts, professionals use a range of KPIs like profit margins, burn rates, and lifetime client values to identify their agencies’ values. 

Factors That Affect the Value of a Digital Marketing Agency 

These are the factors that can affect and influence the value of a digital marketing agency. 

Size and Scope of Services 

The more services an agency can offer its clients, the more it can build its own value by securing and retaining a broader variety of customers. Of course, the scope of the services provided isn’t the only important factor here.  

If an agency can deliver large, complex projects, it can effectively attract bigger clients with bigger marketing budgets, thereby enhancing its worth. 

Number of Clients 

Agencies that display steady growth in their numbers of clients and signed projects are far more likely to win significant investments and sale prices. If an agency has a few big clients that make up the bulk of its revenue stream, potential buyers may wonder about the stability of its income sources. So, the more clients and streams of income it has, the more likely it’ll be to be sold.  

Buyers also consider current client retention rates, the number of contracts, and a variety of mid-level clients. 

Agency Reputation and Experience 

A great reputation always has a positive impact on a digital agency’s valuation. And the opposite is true too. When valuing a digital agency, factors like its online reputation, digital reviews, past client testimonials, and reputation among clients should all be taken into account. 

Market Competition 

Operating in a highly competitive marketing niche can hurt an agency’s value. Choosing a narrow niche can be beneficial. As can using unique tech and highly specific services and offering services that your competitors do not.  

If an agency is clearly established and provides specific, in-demand services to a highly defined target audience, they are on to a good thing. They’ll hold a significantly higher value than an agency that’s battling dozens of its competitors to offer the same services to the same leads. 

Return on Investment from Past Projects 

An agency that can prove that it’s achieved stellar ROI for past clients on past projects is almost guaranteed to find new clients.  

Being able to provide this proof means that an agency has verifiable skills and abilities that will benefit its customers and help them to maximize value from their marketing spend. Essentially, agencies that offer their clients optimal value can expect to be highly valued by buyers. 

Industry Specialisation  

As we mentioned above, choosing a niche is a great way to build a valuable digital agency. Businesses that specialise in a particular industry – like health and wellness, fitness, medical care, or personal finance – are almost always easier to sell. 

Methods of Valuing a Digital Marketing Agency 

Here’s how to value a digital marketing agency using the factors listed above. 

Asset-Based Valuation 

Asset-based valuation is a type of business valuation that focuses primarily on an agency’s assets or the fair market value of all its assets combined, minus liabilities.  

This kind of valuation takes into account tangible assets like equipment, machinery and office furniture and supplies. It’s based on the value of these assets and liabilities on the balance sheets, and excludes virtually all intangible assets, even if they provide significant value to the agency. 

Income-Based Valuation 

Income-based valuation is performed in two key ways: 

  • The capitalisation of cash flow approach: Values an agency based on a sole anticipated stream of cash flow capitalised by a risk-adjusted return rate.  
  • Discounted cash flow approach: Judges an agency’s value based on the current value of its projected future benefit streams. 

The income sources typically included in the income-based valuation method include anticipated future benefit streams like earnings or cash flow. 

Market-Based Valuation 

The market-based approach values agencies based on their appraisal values, intangible assets, and business ownership interest. It also factors in the market prices of comparable businesses and assets that were recently sold or listed. 

This method takes into account assets like book values, price-to-earnings ratios, and sales figures to determine how much a digital agency is worth. 

Know What’s Worthwhile & Worth it 

Valuing a digital marketing agency is the most effective and accurate way to determine exactly how much it would be worth to prospective buyers at a given point in time. Various valuation methods weigh up different assets to come to their conclusions. But as a rule, most digital marketing and media firms sell for around 4-6 times their EBITDA.  

Focus on building a niche, attracting a range of clients, and diversifying your products and services and your agency could be worth even more!

  • 💰 Calculate your agency’s EBITDA: Calculate your agency’s earnings before interest, taxes, depreciation, and amortization (EBITDA) to determine its profitability.
  • 📈 Assess your growth potential: Evaluate your agency’s potential for growth by analyzing your current client base, services, and market trends.
  • 👥 Evaluate your team: Assess the quality and experience of your team and their ability to generate revenue and grow the business.
  • 📊 Analyze your financials: Review your agency’s financial statements, including income statements, balance sheets, and cash flow statements, to understand its financial health.
  • 🤝 Assess your client relationships: Evaluate the strength and longevity of your client relationships and the potential for recurring revenue.
  • 💡 Identify your unique value proposition: Determine your agency’s unique value proposition and how it differentiates from competitors.
  • 🔍 Consider market comparables: Compare your agency to others in the market to determine a fair market value for your business.