How investors value your agency (and how to maximise this)

Hey there,

Welcome to the Agency Finance Letters. This one will be a 4 min read.

If you ever wondered how to value your agency, this is for you.

Cuz here's the thing: trying to maximise your valuation isn’t just an ego play.

It’s about running your agency in the best possible way.

As everything that increases your valuation, makes your agency better…

Less risk, better visibility, predictable performance, no key dependency, you name it.

Top Resource: Built To Sell Radio

Really good podcast with interviews of people who successfully sold their agency.

The Basics of Agency Valuation

At its core, your valuation comes down to a multiple of your profits.

Here's a rough guide (based on your annual Operating Profit):

• Under $1M/year: 1 - 3x

• $1M-$3M/year: 3 - 5x

• $3M-$5M/year: 5 - 8x

• Over $5M/year: 8 - 12x

So if you run a $5M a year agency and make $2M in profits, your initial estimate is around $6 to $10 million.

Side Note:

The reason the multiples increase at scale is because of supply and demand.

1. There aren’t as many big agencies, so they are more valuable (lower supply)

2. PE firms and big corps are more interested in big agencies (high demand)

But only if it was that simple…

The multiple is only used to set the tone.

This will then be adjusted up or down based on all sorts of characteristics…

1. Revenue Type: Retainers > Project-based work

2. Client Concentration: Diverse client base > Reliance on a few big clients

3. Growth Rate: Consistent growth looks good

4. Team Structure: Strong leadership team to take over

5. Niche Expertise: Specialized agencies are often worth more

6. Brand Reputation: Awards and recognition matter

7. Client Retention: Long-term clients are a good sign

8. Quality Processes: good information and systems add value

This might seem like a lot…

But ultimately, it comes down to this question:

Would I buy my own agency?

If not, then you already know what to focus on.

Keep crushing it,

Joey

P.S. Curious about how your agency stacks up? I'm offering a handful of free 30-minute CFO calls to answer any finance questions and share some unique resources for your agency. First come, first served. Just reply "CFO" to this email to grab a spot.