Why is agency revenue, not billings, the starting point?
Many agencies bill clients for media, production, printing and freelance work that passes straight through to suppliers. Gross billings can therefore be well above the income the agency earns for its own work. A multiple applied to billings flatters agencies that place a lot of media and says nothing about profit.
The starting point is agency revenue: what is left after pass-through costs, which is the money that pays the team. The valuer also checks how media rebates or volume incentives from suppliers are handled, because the client contract may say they belong to the client, and how much of the income sits in mark-ups that clients are starting to question.
How much of the income will repeat?
Buyers pay for income that continues. Retainers and rolling scopes of work are more predictable than one-off campaigns or website builds, but a retainer is worth what its notice period and the relationship behind it make it worth. A retainer that either side can end on short notice, with a client who has reviewed the account twice in two years, is less durable than its invoice history suggests.
The valuer looks at client tenure, contract terms, how revenue has moved client by client over several years, and the pipeline of confirmed work. Client concentration gets close attention: where one client provides a large share of agency revenue, its departure would change the business, and the value reflects that risk.
How do key people affect the value?
In many agencies the founders win the work, hold the senior client relationships and lead the creative. If they leave after a sale, much of the income may follow. That is the main reason agency sales often use earn-outs or retention payments, which tie part of the price to results after settlement.
A valuer asks who holds each major relationship, whether senior staff have restraints and are likely to stay, how much work goes to freelancers and contractors, and whether the agency owns the intellectual property it creates for clients and its own tools. An agency with a capable second layer of leadership, documented processes and relationships spread across the team carries less key-person risk.
What does normalising look like for an agency?
Illustration only, not a market multiple. The figures are hypothetical and rounded. They show the path from billings to the earnings a valuer capitalises.
| Line | Hypothetical agency | Note |
|---|---|---|
| Gross billings to clients | $4,000,000 | Includes media and production passed through |
| Less media, production and third-party costs passed through | ($2,500,000) | Clients' spend, not agency income |
| Agency revenue | $1,500,000 | Income for the agency's own work |
| Earnings before interest and tax in the accounts | $350,000 | After staff and overheads |
| Less market cost of the founder's full-time role, above what was drawn | ($150,000) | The founder drew a modest salary |
| Add back a one-off rebrand and office move | $40,000 | Not expected to recur |
| Normalised earnings | $240,000 | The base for capitalisation |
Which methods are used, and how are earn-outs treated?
Capitalisation of maintainable earnings usually leads, because buyers pay for profit that continues. Where a meaningful share of revenue sits in retainers, a multiple of recurring revenue can serve as a cross-check, and net assets set a floor for an agency that is losing money. The ATO recommends a secondary or cross-check method where possible.
An earn-out price is not the same as market value. A headline price that depends on hitting revenue targets for two or three years is worth less today than the same amount paid at settlement, because the seller carries the risk and waits for the money. Where a valuation supports a deal, the report says what it assumes about structure and timing.
What do we need from you?
Exports from your accounting and project systems are usually enough to start.
- ·Three years of financial statements and the current year to date
- ·Revenue by client for each year, with pass-through costs separated
- ·Client contracts or statements of work for your larger clients, including notice terms
- ·A staff and contractor list with roles, pay and restraints
- ·Work in progress and unbilled work at the valuation date
- ·Any supplier rebate or incentive arrangements
- ·Any offer, heads of agreement or earn-out terms under discussion
What does a marketing agency valuation cost?
Every valuation is a fixed fee, agreed in writing before work starts, and it does not change with the value concluded. For a whole agency, or shares or units in it, the band is set by the agency's total annual turnover, excluding GST. Exactly $3 million is Medium; exactly $10 million is Large.
Add-ons are $495 per retrospective (past) valuation date and $795 per additional entity. Delivery time starts once payment and all required information have been received.
| Package | Annual revenue of what is valued | Fee | Delivery |
|---|---|---|---|
| Small Business Valuation | under $2 million | $1,495 + GST | 2 business days |
| Medium Business Valuation | $2 million to $3 million | $2,495 + GST | 3 business days |
| Large Business Valuation | $3 million to $10 million | $3,495 + GST | 3 business days |
| Over $10 million | above $10 million | quoted in writing before work starts | delivery date agreed before commencement |
| Expert report (dispute or court) | any size | $4,495 + GST | delivery date agreed before commencement |