How Much Do Marketing Agencies Sell For? What Drives Price

How much do marketing agencies sell for?

Most marketing agencies sell for about 2x to 6x annual profit. Smaller, owner-run agencies are usually priced on SDE and sit at the low end. Larger agencies with clean books and a team that runs without the owner are priced on adjusted EBITDA and sit higher.

Roughly, by size of profit:

Recurring revenue, client concentration and how much the agency depends on you decide which end you land on.

Why do marketing agency multiples vary so much?

Published multiples vary mostly because they're applied to different profit numbers. One figure is a multiple of SDE, another of EBITDA, another of net profit. Same agency, three different numbers.

• SDE (seller's discretionary earnings) is profit plus the owner's own pay and personal costs run through the business. It's used for smaller, owner-run agencies.
• Adjusted EBITDA is profit before interest, tax, depreciation and amortization, after paying someone a market salary to do the owner's job. It's used once earnings get larger.
• Add-backs are one-off or personal costs you add back to show true profit. Buyers check every one (more on how buyers review add-backs). The ones you can't document get thrown out.

SDE includes your pay, so it's a bigger number and the multiple on it is lower. A lower multiple on SDE and a higher multiple on EBITDA can land close to the same price. Revenue multiples come up too, but buyers price on profit, and about 1x revenue tends to be a ceiling rather than a method. Before you get attached to a number you saw online, find out which profit it meant.

What actually moves the price of a marketing agency?

The price depends on how sure the buyer is that the profit keeps coming after you leave. That's what they pay for. Each of the three factors is a version of that question.

The simplest test we know: if you disappeared for 90 days, would the agency still make money and still win new clients? If the honest answer is no, the buyer is buying a job. The price reflects that.

Why does recurring revenue raise a marketing agency's sale price?

Recurring revenue raises the price because a buyer can see next month's revenue before they pay. We saw this decide the price in two deals we worked on.

The first agency sold a $10,000 prepayment package. Clients paid upfront for a package of work. No recurring revenue. It sold for 50% of what the owner originally wanted.

The second agency was slightly smaller by revenue. But all of its revenue was $1,500-a-month retainers. It sold for 50% more than the owner thought they'd get, and for close to double what the prepayment company did.

Smaller agency. Nearly twice the price.

The buyer of the retainer business could open the client list and see the revenue already contracted. The buyer of the prepayment business had to bet that new packages would keep selling after the sale. Buyers pay a lot less for a bet.

Does repeat business count as recurring revenue for a marketing agency?

Usually not: repeat business without a signed agreement isn't recurring revenue to a buyer. "Clients keep coming back" isn't a signed monthly agreement, and buyers know the difference. They want written agreements with defined monthly billing, so revenue keeps arriving even if you stop selling for a month.

There are exceptions. We saw one deal where much of the revenue came through a self-serve e-commerce site: very high volume, small orders, no single customer that mattered much. The buyer asked about it, but once they saw the full picture, nothing changed. The spread did the job a contract normally does.

That's rare. For most service agencies, no contract means the buyer treats the revenue as project work and prices it that way.

How much does one big client lower a marketing agency's price?

Once one client passes about 10 to 15% of revenue, buyers start to discount, and above about 30% the discount gets large or the buyer walks. Buyers usually want the top three clients under about a quarter of revenue combined. Past those lines, they model what happens to profit if the biggest client leaves in year one.

We worked on a deal where one client was 50% of revenue. It sold, but with a price reduction and clauses tied to that specific client.

That's the usual pattern. The buyer pays less, or pays part of the price only if that client stays, or both. If one client is drifting toward a big share of your revenue, the fix is growing everyone else. That takes time, so start early.

How does owner dependency affect a marketing agency's sale price?

It's one of the biggest reasons a buyer's number comes in below the owner's. Across the market, heavy owner dependency can take 30% to 50% off what the agency would otherwise sell for. When an owner's figure from somewhere online comes in higher than a buyer's view, it's usually one of two reasons. Their numbers aren't accurate, or they underestimate how involved they are. The first is the easier fix: clean, CPA-prepared books with every add-back documented.

The second one catches people. Plenty of owners think that because they don't run fulfillment, they're not involved. But if all your clients come from your personal network and you leave, the business has no way to win new ones. Buyers spot that early in diligence.

Buyers price in the cost of replacing you. When we're the buyer, that often means budgeting for sales rep salaries and building the sales process you currently carry in your head.

When we help sell a marketing agency with heavy founder dependency, we're upfront with buyers about it, and we usually match it with a buyer who wants a day-to-day operating role. Hiding it is a bad idea. It comes out in diligence and costs you more then than it would have upfront.

Is a higher multiple always a better marketing agency deal?

No. A big multiple can hide a structure that pays you far less at closing.

Deferred money is common in marketing agency deals. Cash at close typically runs about 50% to 80% of the price. Owners we've spoken with have been shown offers where 50% or more was deferred through seller financing or an earnout. The owner has to stay on and hit performance targets to get the full earnout. Those targets are usually revenue or EBITDA after the sale, which the owner no longer fully controls.

That's a very different deal from cash at close, even with the same headline number. When you compare offers, line them up like this:

• Cash you receive at closing
• What's deferred, and what has to happen for you to get it
• Who controls the things that decide whether you get paid
• How long you have to stay, and in what role

Negotiate structure as hard as price at the LOI (letter of intent) stage. Once the LOI is signed, you usually agree to stop talking to other buyers, and your bargaining power drops fast.

What should you fix before selling your marketing agency?

Start 12 to 24 months out and fix two things: recurring revenue and how much the business depends on you.

• Get as many clients as you can on recurring revenue. Convert packages and projects into monthly retainers with written agreements. The two deals above show what that's worth.
• Audit everything you do as the owner, weekly and monthly, and remove yourself from as much of it as possible. Sales, client relationships, approvals, hiring. Write it down and hand it to someone who will own it.

While you're at it, keep any one client from growing into a big share of revenue, and get your books clean enough that your add-backs survive a buyer's review.

Our guide to marketing agency valuation goes deeper on how buyers build a number. ZKW buys marketing agencies itself and also helps owners sell to other buyers, so we see both sides. If you want to know where your agency sits in that range, book a free, confidential valuation call with a partner, or read more about ZKW.

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