Your business, like your home or car, has value in the marketplace. Thanks to the Internet, your agency will likely compete on the global stage. This means that your business has value on the international scene. How can you grow your business? Where should you make investments? Should you merge or specialize? Can you sell your agency to a larger group to go global? A business valuation can help you plan for the future of your agency.
The Agency Valuation Calculator
You can do this by using the Calculator for Agency Value from Productive.
The Agency Valuation Calculator is a tool for the end-to-end management of agencies. It allows agencies to get a rough estimate of their market value. This new tool will help you understand what parameters can positively impact your valuations.
Before using the Agency Valuation Calculator, you should learn more about agency valuations.
Methods of Agency Valuation
Multiples are the primary method of valuing agencies. The more your agency earns, the higher the multiplier and the greater your valuation.
Earnings and Revenue
Your revenue is among the first numbers your agency must provide during an appraisal. The total amount of services billed in the last year minus any expenses you paid on clients’ behalf.
Your agency’s value will rise as it generates more revenue.
The net income of your agency is also known as EBITDA or “Earnings.”
For a valuation, either valuation tools or consultants will use a multiplier of the agency’s earnings or your revenue per year.
Your total valuation will be influenced by the multiples that apply to your agency’s revenue.
More factors will influence the value of your agency.
When you first learn about agency valuation, you will hear terms like revenue, earnings, and multiples. But many other factors affect your agency’s market value.
We will list some of the most important ones.
Your earnings and revenues are critical to a valuation, especially in the last 12 months, three years, and five years.
For example, if your agency has grown by 20-30% over the last 3-4 years in revenue, your past 12 month’s performance will be crucial in determining its value. The opposite is not valid. If your agency’s income has been relatively stable (or even decreased in the last 3-5 years), the average of the previous three years is usually considered.
Types of Revenue
It’s not just about earning more money that makes a difference. You rely heavily on recurring revenues to cover your agency’s overhead costs or plan investments.
When selling your agency, recurring revenue or retainer work will be crucial. If you do more retainer work than project-based, your agency’s valuation will be higher. When comparing revenue, annual contracts with clients generate a higher valuation than monthly contracts.
Management Structure and Business Robustness
Typically, buyers want to know the plans for the agency they plan to buy from. They’re also interested in the strength of the business structure. It is recommended that an agency has a well-defined transition plan and documented workflows and processes. This will have a positive impact on the valuation.
Your competitive advantage is another factor that will be considered. Do you have a specific niche or serve multiple industries with your agency? Do you have a core service that you specialize in, or do you provide various services?
The brand image is last but not least. Your agency’s reputation in the local and international markets will help you to attract and retain top talent and clients and shortlist them for new projects. Brand image can’t be quantified, but you can measure it to a certain extent. You can start by contacting a media or PR agency if you haven’t done so before. An excellent brand image will lead to an improved agency valuation.