How To Sell Your Agency For Maximum Profit
Do it once, do it right
I had a meeting today with a group of guys. In the meeting, one of them asked me a question I found insightful and important.
He asked “if I want to position my agency to sell it in the future, what would I do?”
I loved this question because this is the type of thinking that allows you to make the right choices now and reap huge benefits later.
In today’s issue, I’ll talk to you about creating an agency that is appealing to potential buyers in the future.
Most Agencies Don’t Have High Market Value
I often encourage people starting out in entrepreneurship to begin with an agency. But that doesn’t mean agencies are perfect businesses. There are many downsides, the biggest being lack of scale.
As an agency owner, the only way to stand out is by building a better process. There’s nothing inherently proprietary about an agency.
The process is the product. The efficiency is the profit.
Because of this, agencies are hard to sell. Even if you generate a lot of revenue, that doesn’t guarantee a high sale price. What you’re really selling is your client list and brand. The problem is that most agency brands are tied to the owner, which makes them less valuable to buyers.
Typically, agencies sell for about 2.5 times revenue. If you generate one million dollars a year, you can probably sell for two and a half million.
This is nothing compared to the high multiples of tech focused businesses like software, communities, and digital products.
The Solution Is To Attach A Proprietary Product To Your Agency
Scott Galloway had a great example of this in a podcast episode about the businesses he built.
He started a company called L2, which was a market analytics agency. Companies hired him to do data analysis and give presentations. The service was strong, and it generated a lot of revenue. But the reason he was able to sell the company for a nine times multiple was because he created a database that tracked thousands of companies across hundreds of data points. His team researched things like site load time, clicks to checkout, and average order size.
When he sold the agency, he was really selling the database.
The real value was in the tech product. The service was simply an extension of it. This is a perfect fit because typically, agencies have high revenue while tech products have high scale. If you can apply the multiple to the higher revenue point, you will make a ton of money.
This is how you need to think. If you want to build an agency or service business that you can sell for millions, you need something proprietary.
This Is Why I Love Directories So Much
When people join The Launchpad, they often wonder why the 7 figure directory course is included. What do directories have to do with agencies?
For me, and for the system I created called The Machine Method, directories are how I create proprietary tech products attached to my agency.
Over the next few months, I’ll be building lead generation directories across healthcare industries. I’ve already started stemcellauthority.com and will also build directories for autism agencies, testosterone clinics, ketamine clinics, and more.
The reason is because everything works together.
Eventually, there will be a full flywheel attached to my agency. I will have newsletters, directories, and services all under one company.
So three years from now, when I go to sell Quantum Leads, I can sell it for ten million instead of two million.
If you’re starting an agency, that’s great. But while you’re doing it, also think about how you can attach a scalable product. This way you maximize cash flow through services while adding scale through a tech stack.
Want to learn more? I hope you’ll sign up for The Launchpad below.
Love you guys. It feels good to be back. Talk to you tomorrow.
Tim
Learn How To Build a Profitable Marketing Agency By Using The Machine Method
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