What Buyers Look For in a Digital Marketing Agency

Retainers, projects and what repeats

Buyers separate monthly retainer revenue from project work before they look at anything else. A retainer for search optimization, paid advertising management, social media or email is revenue the buyer can expect to see next month. A website build or a one-time campaign has to be sold again. Most agencies have both, and a buyer will want a revenue report by client, by month, for at least two years, with each line marked as recurring or one-time. Agencies that have shifted toward retainers over time are usually worth more per dollar of profit than agencies that rebuild their pipeline every quarter. Our post on recurring revenue explains why.

The next question is how long retainers last. A buyer wants to know the average life of a client, how many clients left in the last year, why they left, and how many arrived. Month to month agreements are common in this trade, which means a buyer treats most of the revenue as renewable at will. They will read the termination terms in the contracts, and they will ask which clients are on longer agreements and what happens at renewal.

Ad spend and how revenue is reported

Many agencies pass client advertising budgets through their own accounts, paying Google and Meta and then billing the client. Some record all of that money as revenue and some record only their fee. A buyer needs to know which one the books show, because revenue that includes pass-through ad spend makes the agency look larger and its margins look thinner than they are. Expect a buyer or a lender to ask for the profit and loss statement with ad spend shown separately, and to compare it to the fees kept. If the books mix the two, clean that up before you go to market. The financials post covers what a buyer expects the statements to look like.

Margins matter in a different way here than in other trades. The main cost is people, so a buyer will look at how many billable hours the team delivers against what it is paid, whether the agency prices by value or by hours, and whether salaries and contractor rates are in line with the market. An agency whose owner works fifty hours a week on client work at no salary will look very profitable until the buyer puts a paid employee in that seat.

Who the clients know

The biggest risk in a marketing agency is that the client relationship belongs to a person. If the owner sold every account, runs every monthly call and is the one the clients text when something breaks, the business may leave with the owner. Buyers ask who the client contact is at each account, how long that person has been there, and whether the client has met anyone else on the team. They also ask who brings in new clients and how. An owner who is the only source of new business has a different company to sell than one with a sales process, referral partners and a content engine that keeps producing leads.

Staff and contractors matter here as well. Many agencies depend on freelancers, offshore teams or white label partners for design, development, copywriting or media buying. A buyer will ask for the agreements, how long each person has worked with the agency, what they are paid, and whether the agency owns the work they produce. If a key contractor works directly for several of the clients and has never signed anything, expect that to come up. Our post on owner dependency describes how to reduce this exposure before listing.

Customer concentration is the other half of the relationship question. One or two clients that make up a large part of fees will draw questions about what happens if they leave during the sale, and a buyer may ask for part of the price to be tied to those accounts staying. See customer concentration for how that plays out.

What a buyer will ask for

Tax returns, monthly profit and loss statements and a balance sheet come first, followed by a client list with start dates, monthly fees, services purchased and contract terms. Buyers want the pipeline, meaning proposals out and how many closed in the last year. They want a record of payroll and contractor payments, the software and tool subscriptions the agency pays for, and the credit card statements that show them. A staff roster with roles, pay and tenure goes in the file, along with the employment and contractor agreements.

Then the documents about control of accounts. Who holds the advertising accounts, the analytics properties, the website hosting, the domain names, the email platform and the social profiles for each client? Some of those sit in the client's name with the agency given access, which is a good arrangement, and some sit in the agency's name. A buyer will want a clean map. Case studies, testimonials, reviews and any partner or certification status with the major advertising platforms go in too, because the buyer will check that the status survives the sale.

What has to transfer

Client contracts are the main asset, and most of them will need the client's agreement to move to a new owner, either a consent or a new signature. In a sale of the company's shares the contracts stay where they are, in a sale of assets they usually have to be assigned. The asset sale versus stock sale post covers the difference. Rules on how those contracts are written and assigned vary by state and your attorney confirms what applies.

Beyond contracts, the buyer needs the agency's name, website and domains, social profiles, software accounts, the office lease if there is one, platform partner status, vendor agreements, and the people. Staff in this industry can change jobs easily, so how and when they are told matters a good deal. Our post on when to tell employees covers the timing.

Most agencies also need a plan for non-compete and non-solicit terms. A buyer of an agency wants assurance that the owner will not open a new shop across the street and call the old clients, and they will ask for terms that cover both clients and employees. The non-compete post explains what is customary.

What tends to sink a sale

In the marketing deals that fail, the usual causes are a top client leaving between the letter of intent and the closing, revenue that turns out to be mostly pass-through ad spend, an owner who cannot step away from client work, contractor relationships that nobody wrote down, and ad accounts that the agency cannot hand over because a client owns them and has not agreed. Agencies also lose buyers when the numbers shift every time a buyer asks a question, because buyers read that as a sign that nobody has been tracking them.

Getting ready

Start at least a year ahead. Split revenue into recurring and one-time in the books and keep it that way. Show ad spend separately. Move client relationships to account managers, and introduce the team to clients as the people who run the work. Put contractor agreements in writing, with a clause that the agency owns what is made for clients. Ask clients who want to stay to sign agreements with a defined term. Make a list of every account, login and subscription, and who owns each one.

At Business Advisors of America we begin with a valuation from your own numbers, prepare the materials a buyer and lender will want, and screen buyers before they learn who you are. If you are weighing selling a digital marketing agency, a short call is a sensible next step.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.