Knowing your agency valuation is critical as a digital agency. For starters, it helps you figure out how much to charge for your services, such as SEO, SMM, or PPC management. But it's also a general question among agency owners looking to sell. In addition, knowing the proper pricing can mean the difference between a good deal and an overpriced investment.
In today's business world, determining your own company's value might be difficult, significantly, when multiple factors influence it. This post looks at the different aspects of your marketing agency that determine the value and allow you to set your pricing structure.
Profit and Earnings
Making a profit is the goal of any new firm. So start here. Your earnings history determines your company's worth. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It estimates how much money is left after salary and rent are subtracted. Digital media companies can typically expect to sell for around 4-6 EBITDA.
However, you should also consider SDE (Seller's Discretionary Earnings) when determining the actual value of your company and its sales. This includes both your taxable and non-taxable income.
The Age of Your Business
Typically it takes around three years for a company to become established and grow financially. The longer you have been established, the more your company will be valued. Client relationships, volume, quality of work, and reputation will increase when your company has been in operation. In digital marketing, all of these factors are important in helping you to build your customer base and establish yourself.
Previous Clients
Landing big clients is always a boost for any company. However, you should not devalue the profitability of smaller clients. In reality, while using a large company's reputation is a big ego boost for your digital agency, the testimonies, and feedback from previous clients are just as essential. The better the feedback, the more of an impact it will have on your value.
Competitive Advantage
Offering unique services, technology, or anything else that sets your digital marketing agency apart improves its worth.
A buyer values an established agency with years of experience serving a clearly defined target consumer in a given industry. But it works both ways. For example, if your services are too particular and there is little demand for them, you may struggle to acquire the value you seek.
The Size Of Your Agency
In general, there is more significant demand and, therefore, a higher value placed on bigger companies. This is down to buyers not wanting to take on work associated with smaller agencies. That's not to say smaller agencies aren't valuable or grow in value over time.
As an example, business owners who earn more than $2 million in yearly profit are in a position to acquire businesses that meet all of their criteria. Once a marketing agency reaches the $5 million annual profit level, it is not uncommon to see it sell for a valuation multiple of 4.5 to 5 times its revenue.
As you can see, the value of a digital agency depends on a variety of different factors, and you can expect your value to increase over time with a greater roster of clients and experience as you grow.