Episode Details

Curious about selling your agency? In this episode of Ask Swenk, I cover how to determine your agency's current value and what you can do to increase it. I also take a real look at the process to eventually sell your agency and gain profit.

{0:48} Tim asked: "What is my digital agency worth if I sold it today?"

{4:10} Bree asked: "What does the process look like when you sell your agency?"

{7:32} Tony asked: "How can you increase your agency valuation?"

The short answer is it's worth whatever someone will give you money for it, and whatever you're willing to take. The thing I want to debunk right now is if you can get over $5 million, that you'll get tons and tons of money, or get over a million. It doesn't matter on your gross. I know agencies that are over $10 million in revenue, and they're like at 4% profit, which is horrible. Your goal for a profit margin should be 40% and more than that. If it's not, you're doing something wrong. There's a lot of people doing something wrong, but the cool thing is, know there's something wrong, and you can make it darn change. Through doing this and making that change, you can focus on how your agency can gain profit. Right? I don't want to cuss.

To answer your question, to give you kind of a baseline, it's all about looking at the past three-year track record. As a possible acquirer wants to know is, they want to make sure you're going up. If you're going down, it's going to be like a fire sale. They're going to be like, "Well, we'll just acquire your assets, and we'll give you this amount of money, and that kind of stuff." You really want to look at has my revenue grown, and by what percentage year over year in order to figure that out. On a low end, it would be 15% gross every year. On a high end, it might be 50%. Then you also need to look at the profit. That's really where it is. Who cares if you're a $10 million agency. You should be making mad bank on the profit. Then you can base your margins ...

On a small side, I'll give you a low, and a small, just to give you some kind of range. If you were 15% gross, or growing every year for the past three years, at 15%, and then 15% profit, you'd probably have a 5x multiple on profit. If you were at $1 million profit, you would get 5 million valuation for your agency. That's not saying you're getting $5 million cash, that's just what they evaluate it at, and then you can go through all the other stuff that I'll cover in the next question.

On a high end, let's say you're at 40% on both ends, 40% growth, 40% margins, then it could be 11x. Let's say you were $1 million profit, then you would get $11 million valuation.

That's just a rule of thumb to give you kind of low, and the high, and then you can calculate if you really want to sell it or not. A lot of times, I tell people not to sell their agency, because a lot of agency owners, and tell me if I'm wrong, they go, "Well, the grass is greener on the other side. I want to go build this product." This was me. "I want to go build this product, because it's so much easier, and I don't have to do all the hard work, and deliver, and all that kind of stuff. What they find is that the grass is greener on the side you actually water. If you did actually want to do a product, you can actually use the agency as an incubator, or this kind of system that just keeps producing these amazing products and technologies. Keep the agency, since you're not getting the huge multiples that you would on a Saas company. Build up these amazing Saas companies, and then you're off to the races, right? You get the money that you want, if that's what you want. If you're doing it just for the money and to gain profit, you shouldn't be doing it.

The first thing is is an acquir