When you are a digital agency, knowing your agency valuation is important. For one thing, it gives you an idea of how much you should be charging for your services, whether that entails
But it’s also a common question that agency owners ask themselves when they want to sell their current business. And for those who intend to buy an up and running one, knowing what price is right can make the difference between a good bargain and an over-priced investment.
In today’s business world, it can be somewhat intimidating when it comes to determining your own company’s value, especially when several aspects can impact its value. But that’s why we’re here to help you make sense of it all.
For all those digital agency owners who want to analyze their agency’s value, this blog is for you.
Determining Your Digital Agency Valuation
How can you calculate the value of your digital agency? I mean, the price is as good as how much someone is willing to pay for it. But you’ve put a considerable amount of time and effort to get where you are today. That should hold some value, too, right? So settling on just any number won’t do.
So the actual value is one that properly reflects your reputation, achievements, future potential, and much more. But if you want to have the upper hand, you need to be aware of the factors that can influence the value of a digital agency.
The last thing a buyer will want is to make a dead investment. No one wants to risk investing in an initiative that won’t work.
Here’s a checklist to identify the most important features that your eCommerce marketing intelligence solution should include to ease your daily struggles with data, help increase sales and lower your customer acquisition.
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2. Time in operation
The longer you’ve been in business, the more your agency is worth it. It’s pretty straightforward. It takes about 3 years for a company to establish itself and grow financially. Anything less than this can detract the value of your agency.
The more years you’ve been in business, the better the reputation, and the more time you’ll have to develop a client list.
3. Your previous clients
While it’s a bonus to have renowned businesses such as Dell Technologies and Capital One under your name, having worked with other small brands is equally essential for your agency’s valuation.
It all comes down to the testimonials and reviews that your previous clients offer, both of which can significantly impact your reputation. As your reputation grows within the industry, your agency’s value will no doubt improve as well.
4. Current projects value affects your agency valuation
A digital agency provides continuous services. Long-standing, recurring contracts cannot be discontinued simply because the owner is changing. Such an action could significantly damage your reputation.
Clients that are in the pipeline can influence the value of the agency. For instance, if the potential revenue from these projects is high, they can improve your worth. And this ties up with the next point.
5. Client concentration
Where will the agency stand a couple of years down the line? If the workflow experiences steady growth, there is a greater charm in investing in the agency.
For example, if a digital marketing agency has a few large clients that are the main contributors to the revenue stream, a buyer will need to consider what happens if they discontinue services or the contract is not renewed?
So even though working with large reputable firms has its perks, revenue streams could trickle down if they decide to leave. It may be advisable not to have any customer account that is over 30% of your sales for the best performing digital agency valuation.
Similarly, the number of current contracts, client retention rates, and the variety of mid-sized clients can impact the valuation process and its growth potential. Ideally, focus on maintaining the right mix of clients.
6. Competitive advantage is important for digital marketing agency valuation
There just might be a price for scarcity. Offering niche-specific services, unique technology, or anything else that others don’t increases the value of your digital marketing agency.
An established agency with years of experience that provides services to a clearly defined target customer in a specific industry is significantly more valuable in a buyer’s eyes.
However, this can work both ways. For instance, if the services you offer are too specific, and there isn’t much of a demand for them, it may be hard to get the value you’re hoping to get.
7. Internal work structure
As the owner of a digital agency, you are the face of the company. Though you may be a part of operations, a buyer will closely consider how work processes are managed within the company and your role in the day-to-day activities.
Is the agency run entirely by you, or do individual managers operate separate departments?
This is important because the person who buys your digital marketing agency will want to know what will happen when you step away.
A management structure that has different departments can continue to run smoothly even when you’re not present.
Department heads will still be available to ensure work processes do not stop. So an integrated internal management structured agency has a better valuation than a one-man show.
However, the level of commitment of key employees should also be taken into consideration. Will they stay on board after the sale is complete? How will a takeover or sale impact the office culture if the owner changes?
8. Current market prices
Before any individual considers launching a digital agency, they are sure to research the price that other agencies are currently fetching. To ensure that you don’t go under- or overvalue your agency, check the market within the last 6 months. Carefully compare aspects that will influence the price, such as the size of the agency, services they were offering, location, etc.
9. Economic conditions
When an economy goes through a recession, every business is impacted. As a digital agency, you are equally prone to devaluations during tough times.
increasing the value of your digital agency
Increasing The Value of Your Digital Agency
Now that you’ve found the way to find out how much your digital marketing agency is worth and the factors that influence it, how can you increase its value?
As a strategic agency, you need to be interested in more than just EBITDA as a percentage of revenues. Increasing value of a digital agency lies in finding ways to improve on it.
The starting years are times when you are still learning and testing the waters. As you mature in the digital marketing arena, your value will grow as your experience increases.
You need to strive continuously and explore new ways to make more profits. Whether you decide to charge your customers more or cut operational expenses, you need to ensure that you’re getting
On the other hand, if you have a debt, now’s the time to clean up your act. Being in debt will decrease your value.