Instead of the freedom they originally planned on, they find themselves in the frustrating trap of working for their business instead of on their business. Or worse yet: they become a slave to the ever changing whims of their clients.
Sound familiar?
If this story rings a bell, or you are simply finding yourself growing bored… I have good news! Selling your agency is more profitable than ever, but only if you do it right.
I have personally learned this lesson the hard way. After having built a million dollar agency that
essentially failed, I capitalized on the teaching that is life experience and turned around to build and scale another agency that I then sold within only 15 months!
Currently, U.S. spending on digital marketing is set to reach nearly $120 billion by 2021, leaving the demand high for companies who want to acquire a marketing agency. (https://www.forbes.com/sites/forrester/2017/01/26/us-digital-marketing-spend-will-near-120-billion-by-2021/#38568ecf278b)Â
However, there is no “one size fits all” when it comes to exiting your agency.
It is an honest evaluation of the market and what buyers value, as well as your systems and approach that will determine either your success or failure. Now is the time to take a serious look at the potential of selling your agency. The market is ripe, and if you take the time to implement efficient systems, niche down, and determine your value, your agency will be strategically positioned to sell.
If you’re feeling up to the challenge, then let’s dive right in!
A Bird’s Eye View:
First of all, let’s take a moment to look at the prospects of selling your marketing agency.
For quite some time now, the digital marketing world has been picking up speed, and it is expected to continue doing so for the 3-5 years. (https://prometheanresearch.com/digital-marketing-agency-industry-report/)
In 2016, the marketing industry overall saw 204 M&A deals in the first six months of the year alone, which totalled an estimated $6.8 billion. This was up from 85 deals valued at $2.1 billion in the equivalent period of the previous year! (https://rthree.com/insights/acquisitions-of-digital-agencies-ad-tech-and-analytics-firms-surge/)
The beauty of a digital marketing agency in the eyes of a potential buyer, is that it continues to be a relatively low risk investment, as well as being increasingly lucrative. This combination has resulted in companies snapping up agencies left and right, and their valuation is skyrocketing as a result.
On top of the simple math of supply and demand, a digital agency’s average acceptable profit margin is hovering around 17% depending on the size of the agency. (https://agencyanalytics.com/blog/agency-margins)
High profit margins, and a low risk industry… well that’s just music to a buyer’s ears!
Needless to say, if you haven’t considered selling your agency before, it might be time to start evaluating what it would look like to structure your agency to sell.
Reasons to Sell:
The reason to sell your agency has to go beyond the potential for profit.
Obviously, as a business owner, profit is the bottom line, but there are right and wrong reasons to consider selling your agency.
When it comes to efficiently scaling and selling your agency for a large profit, there is no room to be short sighted. You have to be willing to play the long game and put in the work up front if you want to see a worthwhile number on the selling table.
Which means that you have to know why you’re selling your business.
No one wants to board a sinking ship while the captain sails away into the sunset on the only life boat. Trust me. You cannot choose to sell in the hopes of jumping ship.
A failing agency cannot be your “why”.
You must be willing to put in the work to ensure that you are selling a company that is worth a buyer’s time and attention. If you don’t, you will go to sell only to find that the business you’ve poured your heart and soul into for however many years, might in fact be worthless.
Whether you are exhausted from many years of grinding day in and day out in the trenches of your business, and dream of financial freedom and retirement, or you’ve grown restless and are ready to scratch the entrepreneurial itch of starting a whole new business, your “why” will keep you grounded and centered throughout the process ahead.
The 3 Factors That Will Increase Your Value to Buyers:
1. Working Yourself Out of a Job
That’s right. I said it.
To most business owners, this may sound completely counterintuitive and even foreign. But when it comes to running a successful business, and ultimately selling one, the most dangerous things you can do is to become synonymous with your company.
Sadly, this is a mistake that many business owners make without even realizing it.
The first step in working yourself out of a job will be to extract yourself from the day to day minutia of your business. If you are involved in —or worse— in charge of, every sale, project, and meeting, you will never be able to sell. Your business cannot be synonymous with YOU.
There are two key steps in extracting yourself from being involved in every facet of your company:
- Staff Your WeaknessesÂ
Being the owner of your company doesn’t, and shouldn’t, mean that you are the best at everything. A wise business owner knows that staffing a team full of people that are even more skilled than they are is the path to success. Take time now to develop a strong management and sales team that can skillfully carry on without you when the time comes. Your buyer will want to see and feel confident that your business won’t go up in flames once you’ve made your exit.
- Create Written SOP’sÂ
You can’t afford to skimp on your processes and SOP’s, and you certainly can’t afford to have them stored entirely in your head! Potential buyers are typically not interested in buying themselves another job. They are interested in a profitable investment. Which means that if you have failed to structure and systemize your agency, finding a buyer will be nearly impossible. The effort you put in up front to increase the efficiency and scalability of your business will make all the difference down the road when you go to finally sell. Having detailed systems in place will allow your team to run smoothly and efficiently without you. If they have to constantly turn to you for direction, you can never be replaced, but if they can turn to the systems that you have painstakingly and lovingly implemented… the well oiled machine if your agency will continue to run without a hitch.
At a minimum you should have systems implemented across your agency for the following prior to selling:
- Lead generation and sales
- Pricing Projects
- Client payment structures
- Onboarding new clients
- Clearly defined project teams
- Client presentations
- Project timelines
- Customer satisfaction and feedback
2. Claiming Your Ciche
Being a “jack of all trades” will work against you when it comes to structuring your agency to sell. Not only will it make it harder to streamline your systems and create an efficient team that can function without you, but it makes your agency harder to pitch to potential buyers.
Finding a niche market will make you much more valuable in the eyes of a potential buyer. They will want to see that you specialize in something and this will attract strategic buyers.
When you niche down, it also allows you to market your process like a product, rather than bending to the individual needs of each client. Owning a process puts you in control and makes your services easier to pitch to both your current clients and to your future potential buyers.
On top of having standardized SOP’s and training for everything you do, consider developing automation tools on top of your processes to make your services run more like a product. This will also mean that you will be able to transition from a service based model into a billed-up-front product based model, which will foster positive cash flow. Another win to interested buyers!
3. Determining Your Valuation and Minimizing Risk
Now it’s time to determine what your agency is actually worth! You might be surprised at how much the simple steps of effectively staffing your team, creating your SOP’s, and niching down will increase the valuation of your business to a buyer.
Unfortunately, agency valuations are extremely subjective.
A difference between a multiple of 2-4 times your annual profit is often millions of dollars! Your history of growth and future projections weigh heavily into an agreed upon valuation between seller and buyer, as well as things like number of clients and debt.
If the majority of your revenue is coming from only a few high paying clients, many buyers will be turned off by the increased risk of acquiring your agency. Make sure that no one client makes up more than 15% of your revenue.
Debt is also an obvious red flag for a buyer. They want to see that you have consistent cash flow that has been managed well.
Reputation and churn rate are also huge factors in valuation!
Online reputation and reach has become an increasingly relevant factor in determining the valuation of an agency. Even just a few poor reviews could turn off a potential buyer, and low organic rankings could raise a red flag.
On the flip side of this, an agency with raving customer reviews, and organic online traffic that can prove a consistent influx of new leads can highly increase value in the eyes of your potential buyers.
Running side by side with reputation is churn rate. These two are often reflective of each other.
If your agency is able to retain clients beyond their initial contract, then the acquisition risk will be much lower for a buyer. They can focus the majority of their energy on attaining new clients rather than on keeping current ones.
Agencies that focus on a particular niche will often see a much lower churn rate, as they have taken the time to specialize in one specific area and therefore offer their customers an unparalleled focus and level of excellence that the customer will rarely want to part with.
Ultimately, determining the valuation of your business will come down to what it is worth to you as the owner, and the amount of effort you have put into establishing your systems and minimizing acquisition risks for your buyer.
The Bottom Line:
The journey to scaling and selling your business might seem daunting, but it can be extremely rewarding, especially in the current agency acquisition climate.
Even if you don’t have current plans to sell your agency, consider implementing the steps in this roadmap as early as possible. When you have the systems in place to free yourself up as the owner, you will find that there are both short term and long term rewards.
And down the road it may save you both time, and a headache! If you are currently in the process of structuring your agency to sell, which of these three steps jumped out at you the most?
