How to Value and Sell Your Marketing Agency
Changes in technology make marketing agencies essential to business owners, and the web is the most effective way to advertise. EMarketer forecasts total 2021 digital ad spending to exceed $332 billion, and Statista projects $389 billion in digital ad spending for 2021.
The COVID-19 pandemic has forced thousands of businesses to change how they do business, which impacts the marketing process. A restaurant that shifts from an in-person dining model to carry-out and delivery needs a new marketing approach. An effective marketing agency is more valuable than ever.
If you’re wondering how to sell a marketing agency, you need to review your finances, document agency procedures, and understand the true value of your business. A business broker can help you through the entire process of selling your agency.
Managing Agency Finances
Assess your agency’s finances, and how a potential buyer will view your business.
Marketing agencies generate profit margins ranging from 11% to 20%, and successful agencies track these key performance indicators (KPIs):
Total revenue, annual profits
Revenue per client, revenue per employee
Client satisfaction, leads generated
Well-managed agencies track the hourly cost per worker, calculate overhead, and allocate costs to each marketing project. Agencies that consistently generate high profit margins will attract more buyers.
If you have a diverse group of clients, and don’t rely on a small number of customers to generate most of your revenue, your business is more valuable. Calculate the profit margin per customer, and consider charging more if a client demands more time from your staff.
Successful agencies often develop a niche, and become the go-to marketer in that niche. For example, if your niche is pet food marketing, you can gain more knowledge about the industry, and provide targeted solutions to clients.
Some agencies generate more revenue by negotiating revenue-sharing agreements. When the client converts prospects into customers through an online ad campaign, for example, the agency shares in the revenue. Over the long-term, the agency may generate more revenue from the client than a traditional fee structure provides.
Next, you need processes in place that allow the buyer to operate the business after a sale.
Creating Systems to Serve Clients
A buyer wants a business that can operate without the owner’s continuing involvement. If you have processes in place to serve clients and they have been documented, a purchaser can successfully transition the business.
Assume, for example, that you manage online ads and social media for a clothing retailer. The retailer works with a marketing expert on strategy and content, and a technical specialist ensures that the content is posted correctly. The new owner can leave the same team in place to continue to work with the client.
Document each routine task in a procedures manual, and make changes as needed. Discuss the entire operation with your staff, so that the information in the manual is accurate. The procedures manual is a valuable resource for the new owner.
Marketing agencies that have service contracts in place are also more valuable. Contract work provides recurring revenue, and the agency is less reliant on the owner’s personal relationship with each client. A new owner is in a better position to retain the work by negotiating extended contracts with clients.
Running your agency is time consuming, and you may not have the time or expertise to sell your business. Brokers know how to value a marketing agency. The business brokers at Raincatcher work as trusted advisors, and guide business owners through the entire sale process.
How a Business Broker Can Help
Start by having an in-depth discussion with a business broker. Raincatcher’s brokers have worked on thousands of transactions, and they can help you identify the factors that make your agency valuable. Work with a broker to review your financials, and to document tasks in a procedures manual.
Creating Marketing Materials, Finding Buyers
Once the broker understands your business, he or she will create marketing materials that promote your agency’s value. Brokers maintain a network of accountants and attorneys that work on business transactions, and they network with investors.
Your broker will get marketing materials to interested buyers, and work to identify purchasers who have the financial means to buy your business.
Managing Due Diligence
When an interested buyer is identified, you’ll start the due diligence process. The buyer will sign a non-disclosure agreement, to protect the confidentiality of your business records.
Due diligence can be frustrating, and a broker can make the process easier for you. Brokers know what information is relevant to the sale, and they keep the document review process moving.
Valuing the Business, Negotiating the Sale
Raincatcher provides a certified business valuation service, so you can learn exactly how much your company is worth. The report is prepared by an independent appraiser, and is the higher standard of valuation. Your broker will use the valuation and other data to negotiate the sale price and close a sale on your behalf.
YOU MAY ALSO LIKE OTHER “ONLINE + DIGITAL" RESOURCES