During 2022, Productive developed a questionnaire with one goal in mind – to raised understand agency mergers and acquisition trends. Whether you’re attempting to sell your agency or are only inquisitive about the worth you’ve created, understanding aspects that impact your agency’s value is a vital a part of regular growth.
From January to June 2023, Productive managed to assemble responses from 796 agency businesses on questions related to agency valuations. The data was gathered from a wide selection of agencies, from greater than 60 countries through the Agency Valuation Calculator.
The gathered data was analyzed and consolidated into the 2023 Agency Valuations Report with the aim of providing insights to agency professionals which might be based on recent data.
Keep on reading to get the newest scoop on agency valuation trends.
The Basics: Size, Agency Revenue, EBITDA and Growth
Agency size may not seem to be probably the most obvious metric you must keep track of, but oftentimes it correlates with revenue, meaning that greater agencies often herald more cash.
When taking a look at the dimensions, agencies were divided into 4 categories:
Source: Productive.io
When speaking about agency revenue, respondents were divided into 2 categories: above and below $1M USD in revenue. This revenue category, combined with EBITDA, determined the multiplier used to value your agency. This signifies that the more you earn the upper the multiplier and, in the long run, the upper the valuation.
The findings were as follows:
Source: Productive.io
In terms of average annual revenue growth, in a 2 12 months period from 2020 to 2022, around 22% of the businesses grew below 10% a 12 months while almost half of the agencies said that their average yearly growth was over 30% for a similar time period.
Client concentration is one other key aspect of your agency’s value. It shows the share of yearly revenue brought in by your largest client.
You’re probably considering: “Why would this be essential?” and it’s comprehensible. At first, it doesn’t seem to be something all too essential, but it surely shows how much risk your small business may be carrying. If your biggest client churns, how much of your yearly revenue can be lost? It’s generally agreed upon that when taking a look at client concentration, anything below 25% is favorable.
Around 26.3% of the surveyed corporations reported that greater than 30% of their yearly revenue comes from their largest client.
Source: Productive.io
In terms of revenue, it’s also essential to know the way much of an agency’s revenue is recurring. Knowing your recurring revenue is precious since it provides investors with a certain level of safety in regard to the business they’re acquiring. More than half of the agencies participating within the survey reported that fifty% or more of their revenue is recurring.
Source: Productive.io
Business Development and Management Robustness
Buyers value well-established processes and documented workflows. It shows that your agency has structured operations. Having a business development strategy in place can also be really useful, it helps buyers see how your agency will operate once it’s sold.
Most of the companies reported that they’d a business development strategy in place, however the founders were still involved to some extent. Around 80% of the respondents said that they’ve some level of management in place but their founders are still involved in management.
Source: Productive.io
Another thing that contributes to the perceived stability of your agency is the willingness of management to be involved in the long run work of the agency after it’s sold. The findings show that almost all agency owners plan on staying with the corporate for anywhere between 12 and 24 months.
One of probably the most interesting findings of the study is that on average, lower than half of the agencies use an integrated platform that consolidates all of their business data.
Source: Productive.io
Effective agency management relies on the strategic consolidation of business data. Harnessing this data allows agencies to streamline operations, allocate resources efficiently, and make precise forecasts for future trends.
To enhance agency valuations and maximize opportunities for mergers and acquisitions, undertaking this pivotal step is imperative. Explore the excellent agency business management capabilities of Productive for a seamless end-to-end solution.
The Dos and Don’ts
To enable you to quickly assess whether you may be making a few of the most typical mistakes, take a take a look at the list of do’s and don’ts.
Source: Productive.io
Overview: What the Agencies With the Best Valuations Are Doing
You may be focused on seeing the way you fare against the highest agencies. Below you will discover a performance sheet for the highest 5% of agencies with the best valuations for each revenue categories: revenue below $1M and revenue above $1M.
Source: Productive.io
Several evident distinctions exist between the leading agencies within the over $1M revenue category and people within the under $1M revenue category. While each groups show elevated profitability and swift growth, the highest agencies with revenue below $1M rely more heavily on founders for business development, as many lack a proper sales strategy. Additionally, they have an inclination to utilize quite a lot of disparate tools that don’t consolidate their business data right into a unified platform.
Source: Productive.io
Takeaway
In the dynamic landscape of agency valuations, just a few key moves can significantly impact your agency’s value. First off, prioritize regular growth by diversifying your client base and aiming for a consistent revenue increase, preferably over 30% annually. This not only improves day-to-day operations but significantly boosts your agency’s market value.
Next, consider risk management by maintaining a diversified client base—keeping client concentration below 25% is an excellent rule of thumb. Ensure that no less than half of your agency’s revenue is recurring, offering a stable income stream that appeals to potential investors.
Operational efficiency is crucial. Develop well-documented processes and workflows, showcasing a structured operation that appeals to buyers. Embrace integrated platforms for data consolidation to streamline operations, allocate resources efficiently, and make precise forecasts.
Lastly, plan for the long run. Even after a sale, your involvement matters. Most successful agencies have their founders staying with the corporate for 12 to 24 months post-sale, contributing to the perceived stability of the business.
In essence, the secret’s a strategic approach that mixes consistent growth, risk mitigation, operational efficiency, and thoughtful planning for the long run, all of which contribute significantly to elevating your agency’s market value.
Get an Estimate of Your Agency’s Value With the Agency Valuation Calculator
Whether you’re contemplating a sale or just curious, understanding your agency’s value is crucial for constructing long-term advantages. Ensuring stable revenue streams, cultivating a various client base, establishing a robust management structure, and leveraging integrated data are essential elements. These aspects not only improve day-to-day operations but in addition substantially increase the market value of an agency.
Try the Agency Valuation Calculator to learn what influences the entire value of your agency, plus how you may increase it.
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