Agency Value In a Digital World – Purchase Price Structures

When digital was a novel offering, we saw agencies with that narrow focus receive extravagant valuations.  Today, digital expertise has become a given rather than a point of differentiation. I heard the comment at an AMI event that basic online digital services are part of the “table stakes” that every agency must put up in order to be seriously considered by a prospective new client, or by a current client for some types of projects.  That is consistent with my experience. Most agencies have it in-house and the others outsource it. But it’s a very rare agency today that just doesn’t offer digital services. So, how do advertising agencies charge for services? Agency values continue to be simply defined as a semi-subjective combination of profitability, size, the client list and the services the agency routinely provides. There are plenty of other factors that influence the final number but we always start with these. So, what about the seller’s goals?  Many agency owners begin down the path of selling their agency only to quickly retreat once they are shown the valuation and what they can hope to get as a purchase price/package A very important aspect of the transaction is the actual structure of the deal. How, how much, and when are you going to get paid?  In many cases, the sales price doesn’t matter as much as when are you going to get paid. First of all, how much cash are you going to receive at closing?  What can you expect? And, how negotiable is it? Managing Your Margin Let’s assume that your agency is profitable, with a respectable margin.  Say that the net margin is 15%. (Note: net margin is the percentage of revenue [...]