1. Revenue and growth

Revenue size and growth rates are directly proportional to valuations. Agencies with steady growth, in particular those over US$1M, are commanding higher offers. Agencies with annual growth rates above 30% have increasingly become of interest to buyers; therefore, growth has probably become one of the key issues with valuation.

2. Client concentration

Diversify client engagement to reduce risk. Overall, those agencies that have strong dependence on one client—more than 30% of their revenues are derived from a single source—are considered high-risk investments. In an ideal world, a client should not generate more than 25% of total revenue.

3. Recurring revenue

Recurring revenue models are favored by buyers for the stability they promise. Higher valuation agencies report that the majority of their income is actually recurring. Long-term contracts, subscription-based models—these make your agency more predictable and favorable to acquire.

4. Business development and management independence

Agencies that run efficiently with minimal dependence on their founders generally achieve better valuations. Most agencies still rely on the founders for growth and management. However, those that have a very strong leadership cadre and also have properly documented workflows do a better job of sustaining the operations beyond the sale. The buying agencies give more value to agencies that have clear leadership structures which are minimally dependent on founders.

5. Operational efficiency through the use of integrated data

The high-performing agencies further step into integrating their operations into the data management systems. Buyers look forward to collaborating with such agencies for enhanced decision-making and resource management. Business data across platforms get consolidated into better operational efficiencies and growth insights.

6. Brand reputation

A strong, recognized brand is worth more in the market. While reputation is intangible and hard to measure, agencies with a good market standing or prestige clients (such as logo clients including P&G and Adidas) usually get higher valuations. Continuous branding, along with case histories of successful clients, help build up a sound reputation.

7. Transition planning

Buyers like ease of transition. Agencies where the founders intend to remain involved for a period of time—that is, 12-24 months, post-sale—make the transition smoother and more palatable to buyers. A planned transition to an effective management team facilitates continuity and diminishes risk.

8. Protect intellectual property

Legally protect your IP through patents, trademarks, or copyrights. Convince buyers of the worth of these assets and how they set your agency apart, including how they may be utilized to fuel future growth.