10 Things I Wish I Knew Before Selling My Agency

By Karl J Skutski, Fellow, PRSA (retired cofounder of TobinLeff)

What's Inside

• Most agency valuations are based on a weighted average of three to five years of adjusted EBITDA, which is why exit planning five years out isn't early, it's necessary.
• A generic agency may command a 3–4x EBITDA multiple. A specialized agency with recurring revenue and margins above 20% can command 6x or higher.
• High client concentration — one client representing 20–25% or more of revenue — is one of the most common factors that reduces valuation or shifts purchase price into an earnout.
• Buyers are not purchasing the history of your agency. They are buying its future potential, and they will discount anything that makes that future uncertain.
• Founder dependency is a valuation risk. If your agency cannot operate without you, buyers will price that into their offer.
• Most agency transactions include an earnout. Knowing the structure before you enter the process is the difference between getting paid and leaving money on the table.
• The typical agency sale process runs nine to fourteen months from preparation to close. Sellers who start earlier close faster and with fewer surprises.
• The right M&A advisor specializes in agency transactions and has no single-solution agenda. Your accountant and business attorney are not substitutes.

I am a 75-year-old retired owner of a mid-size public relations agency — the top agency in our market when I sold.

I am also the co-founder of TobinLeff, a mergers and acquisitions advisory firm specializing in marketing agencies, PR firms, and professional services businesses.

I am financially independent today.

At the time, way before I had the pleasure and good fortune of meeting David Tobin, I retained an exit planning consultant who convinced me that if I put a plan in place at least seven years before my planned exit, I could receive top dollar for the equity in my firm and achieve my long-term financial objectives.

The plan worked.

Sort of.

In spite of the fact that the economy took a nosedive at the very time I sold, I was able to resort to the built-in Plan B of my exit plan and claim a corporate asset we had established — a form of a cash-value insurance policy to ensure there was a hard asset available to pay me off and allow me to "sell" my agency to a key employee through a management buyout.

A great plan, right?

Well, yes and no.

Yes — in that it demonstrated the wisdom of creating an exit plan five to seven years before you plan to move on.

If you are in your late fifties or sixties, given all the years, sweat and blood, and time away from your family: you are making a costly mistake if you do not have an exit plan in place now.

I know too many agency owners who waited too long. They were convinced they could walk away with a few cool millions when they decided to retire — only to get a rude awakening and receive pennies on the dollar when they eventually hung up their spurs. This is especially true of agencies that are overly dependent on their founders, who did not have exit plans, and more importantly, did not prepare their agency for sale at least three to five years out.

I did well. But I could have done better.

Not complaining. I achieved my financial goals. But looking back, I realize: (a) I didn't truly understand what my agency was actually worth, (b) I didn't fully understand my exit options, and (c) most importantly, I had not properly prepared my agency for a potential third-party sale — which, at the time, was under my radar.

What I learned is that you can do far better if you plan early and educate yourself on your options for selling your agency for the highest price.

Here are ten key things I wish I knew — and what I would do differently today.

1. Value, Value, Value — What Is My Agency Actually Worth?

When you started your agency, your focus was on making ends meet, keeping clients happy, and keeping the doors open. You became well-established. You were on the A-list. Life was good.

Then you started thinking about selling — and got a wake-up call.

Your accountant or business coach pointed out that while you were generating strong gross income, your EBITDA margins were thin. Your agency was worth a fraction of what you thought.

The moral: If you hope to sell your agency in the next three to five years, you must focus today not just on revenue, but on the real value of your business.

If you don't know what EBITDA is, you are behind and need to get up to speed. Buyers are not purchasing the history of your agency. They're buying its future potential. They expect a minimum return on their investment — typically 15% or more over five years — and they'll discount your valuation accordingly if the fundamentals aren't there.

You also need to understand multiples. A generic PR, advertising, or digital agency may command a multiple in the 3.0–4.0x range. But if you have genuine differentiation — a specialized niche, strong recurring revenue, institutionalized processes — your multiple could be 6.0x or higher.

Most agency valuations are based on a weighted average of your previous three to five years, calculated as a multiple of your adjusted EBITDA. That's why exit planning five years out isn't early — it's necessary.

2. Don't Play It Too Conservatively

I walked into my CFO's office one day and saw a bank statement with seven figures in available cash. I took the management team out for a great lunch. Our employees received generous year-end bonuses.

But if I could do it over, I would have taken that capital and invested it in a differentiating capability — likely something in the digital marketing space. I was too focused on the monthly bottom line and lacked the forward vision to understand how the future value of my agency would have increased significantly had I been willing to invest in the technologies and capabilities that all indicators suggested were the future of the business.

Playing it safe felt responsible. In hindsight, it was the more expensive choice.

3. Specialize — Don't Be a Vanilla Agency

While we purported to focus on B2B marketing — at least eight of our clients were in the Fortune 500, with heavy emphasis on high-tech and industrial companies — we weren't specialized enough.

At industry conferences, I consistently learned that the agency owners getting the highest valuations for their businesses were tightly focused and highly specialized. One firm had exclusive in-roads to product placements in Hollywood films. Another focused on franchises for the DIY market. A third specialized in financial investor relations for healthcare firms. These were not capabilities easily replicated by generalist agencies.

Buyers systematically discount agencies that compete on broad service menus rather than a defensible, differentiated niche. Specialization isn't just a marketing strategy — it is a valuation strategy.

4. Hire People Smarter Than You

David Ogilvy said it best: "If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants."

If you believe you are the indispensable center of your agency, your business will likely be worth very little when you move on. Buyers discount agencies that cannot operate — and grow — without the founder.

But if you identify, hire, and incentivize the best people for each function in your agency, you will build something more sustainable and far more attractive to buyers.

And "smarter" doesn't always mean experienced. Three of my top employees had zero background in marketing or PR. They were simply smart. One former high school English teacher joined as a proofreader — within months she was leading market research and wowing Fortune 500 clients.

5. Get Out of Your Bubble

You may be the top agency in your market. But if you have never benchmarked your firm against the best practices of leading agencies nationally, you are operating with incomplete information.

Potential buyers know who the top firms are in your space. The question is whether you are among them — or whether you just think you are. National industry conferences are a good place to start. You will learn more in a single evening at a conference than you will from months of reading trade publications.

6. Get Financially Fluent

Most agency founders got into this business because they were talented with words, ideas, creative execution, or strategy. Very few of us got into it because we loved reading P&L statements.

In my time consulting with TobinLeff, I analyzed the financials of well over 100 marketing agencies. Here is what I consistently found: the overall values of the agencies we were trying to sell were much lower than what owners hoped to receive — because in many cases, owners did not understand their true costs of doing business, or even their own business models.

They would report 15% profitability, then discover — after we adjusted for a market-rate owner salary — that they were actually operating at a loss.

Here is a simple framework I still recommend:

• Labor costs (including benefits): 60%

• Non-labor overhead (rent, IT, utilities, travel): 10–15%

• Profit (EBITDA): 25–30%

In today's remote-work environment, overhead costs have compressed significantly for many agencies, which creates a real opportunity to improve margins — if you manage it intentionally.

If you don't know whether your agency clears this bar, find out now, not six months before you go to market.

7. A Little Knowledge Is a Dangerous Thing

I spent nearly 40 years in the agency business. I attended dozens of conference sessions on exit planning and M&A. I talked to peers who had sold their firms.

I thought I understood the process.

I didn't.

This is not something you should attempt with your existing team of accountants and lawyers — however capable they are in their respective domains. Agency M&A is a specialized field. Your general counsel and your CPA, however trusted, have limited exposure to the nuances of how marketing and professional services firms are valued and sold.

You need an advisor who has completed many transactions with firms like yours, who has no single-solution agenda, and who can walk you through all of your exit options — not just the one they happen to sell.

8. Know What Your Agency Is Worth — Before Someone Else Tells You

You should neither undersell nor oversell yourself. Most agency owners I've encountered had no reliable sense of what their firm was actually worth when they entered the sales process.

Get educated on how marketing agencies are valued. Understand the methodologies your potential buyers will use. Understand the terms — not just the headline number, but the structure of the deal, including any earnout provisions that require your agency to hit post-sale performance benchmarks in order for you to receive your full payout.

Most deals for agencies in the $5M–$50M revenue range include an earnout component. Knowing this ahead of time — and structuring your business to meet those benchmarks — is the difference between getting paid and leaving money on the table.

Once again: your number one priority, three to five years before selling, is to enhance the value of your agency and understand what that value actually is.

9. Hire the Right M&A Advisor

The exit planning consultant I hired offered only one solution — an employee-based buyout — and was financially incentivized to sell me a large whole-life insurance policy to prefund part of my future payout. She was a one-trick pony. Her strategy wasn't wrong — it was just the only tool in her bag.

You need a mergers and acquisitions advisor who has completed many transactions with agencies and professional services firms, who is compensated in a way that aligns with your outcome, and who can educate you on the full spectrum of your options:

• A management buyout to your senior leadership team
• A merger with a complementary firm
• A sale to a strategic acquirer — a larger agency or holding company
• A sale to a private equity firm or family office
• A recapitalization that allows you to take chips off the table while retaining upside

Each path has different risk profiles, different payout structures, and different implications for your team and your legacy. A qualified advisor helps you navigate all of them — not just the one that benefits their fee structure.

10. Stay in Your Comfort Lane

I once had an offer from one of the top public relations firms in the world. Their team flew in. We met at a private club. The food was excellent. They slid their documents across the table and handed me a Mont Blanc pen.

I set it down.

The terms were structured as one-third cash (with a significant tax haircut), one-third in their stock, and one-third contingent on the profit center I brought to them performing at 20% or above — which assumed all of my clients and employees would transfer seamlessly. That assumption was optimistic at best.

But beyond the deal structure, there were cultural concerns. It just didn't feel right.

Selling your agency is not purely a financial transaction. You will likely be required to stay involved for two to four years post-close. The culture, values, and operating philosophy of your buyer will shape that chapter of your professional life.

Study the letter of intent carefully. Scrutinize the financial terms. Listen to your advisors. Then take a breath and trust your gut.

Does this buyer share your values? Can you see yourself operating under their leadership for the next few years? Will your team be treated well?

Selling your agency will likely be the single most important financial transaction of your career. Plan accordingly. Understand your options. Hire the right advisors.

And know that if you do those things — starting today, not five years from now — you can do far better than you might expect.

Warning Signs: Common Mistakes Agency Owners Make Before Selling

These are the patterns we see most often — and the ones that consistently erode value or derail transactions:

• Waiting too long. Agency owners who begin preparing 12–18 months before a desired exit rarely maximize value. Three to five years is the realistic preparation window.

• Overestimating value based on revenue. Top-line revenue does not determine agency value. EBITDA margin, margin consistency, and revenue quality do.

• Underdocumented add-backs. Buyers reject or deeply discount owner add-backs that aren't clearly documented. Every adjustment to EBITDA needs a paper trail.

• High client concentration. If one client represents more than 20–25% of your revenue, buyers will discount your valuation or shift more of the purchase price into an earnout.

• Founder dependency. If your agency cannot operate, retain clients, or win new business without you, buyers will price that risk into their offer.

• Using generalist advisors. Your accountant and business attorney are not substitutes for an M&A advisor who specializes in agency transactions.

• Project-heavy, non-recurring revenue. Buyers pay premium multiples for retainer-based revenue. Project-based revenue is discounted because it is not guaranteed under new ownership.

Frequently Asked Questions: Selling a Marketing or PR Agency

How do I know what my agency is worth?

Agency valuations are typically based on a multiple of your adjusted EBITDA, calculated on a weighted average of the previous three to five years. The multiple itself depends on your margin level, revenue mix, client concentration, specialization, and growth trajectory. Ultimately, valuation is driven not simply by a headline multiple, but by the quality of earnings, growth trajectory, strategic relevance, competitive dynamics of the sale process, and the terms of the transaction.

Looking at 21 of our recent agency transactions for Marketing & Digital Agencies:

• The average multiple based on trailing 12-month EBITDA at the time of LOI was 6.50x
• The average multiple based on a weighted three-year EBITDA average was 7.20x
• The range of trailing 12-month EBITDA multiples was 2.65x to 12.64x

For additional up-to-date information on agency multiples, check out our article on What Buyers Actually Underwrite When Buying an Agency.

What EBITDA margin should my agency have before I consider selling?

Buyers generally view EBITDA margins below 15% as high-risk. Margins of 20% or above are viewed more favorably, and agencies consistently generating 25–30% margins with recurring revenue and specialized positioning typically command the strongest multiples. Consistency matters as much as the number — a single strong year is less compelling than three to five years of stable, repeatable margins.

What is an earnout, and is it common in agency sales?

An earnout is a provision in an acquisition agreement that ties a portion of the purchase price to the acquired agency's post-close performance. Earnouts are common in agency transactions — particularly for agencies with founder-dependent revenue, high client concentration, or limited operating history at current margins. The earnout period typically runs two to four years and is based on revenue, EBITDA, or both.

What is a realistic timeline for selling a marketing agency?

Based on TobinLeff's transaction experience, the typical process — from initial preparation through close — runs six to twelve months. This includes financial preparation and positioning, running a structured sales process, due diligence and final negotiations, and closing. Sellers who begin preparation earlier close faster and with fewer surprises.

How does client concentration affect my agency's valuation?

High client concentration — particularly when one client accounts for 20–25% or more of revenue — is one of the most common value-eroding factors in agency sales. Buyers view concentrated revenue as concentrated risk. The typical response is to discount the valuation, reduce upfront cash, and shift more of the purchase price into an earnout tied to client retention. Sellers who begin diversifying their client base 12–24 months before going to market materially improve their outcome.

How do I reduce client concentration before selling my agency?

The most effective strategies include actively developing relationships with new clients in your target vertical, ensuring your business development function does not depend solely on the founder, building retainer structures that create revenue predictability, and tracking client concentration as a KPI. If one client represents more than 20% of revenue, begin addressing it at least 12–24 months before a planned sale.

What is a Quality of Earnings (QofE) review, and do I need one?

A Quality of Earnings review is an independent financial analysis — typically performed by a third-party accounting firm — that examines whether a company's reported EBITDA is accurate, sustainable, and truly available as cash flow. Buyers commission QofE reports during due diligence. Sellers who commission a sell-side QofE before going to market identify and resolve issues on their own timeline, move through diligence faster, and present buyers with greater confidence in the numbers.

What add-backs do buyers typically accept or reject?

Buyers generally accept clearly documented add-backs for one-time or non-recurring expenses, excess owner compensation above market rate, personal expenses run through the business, and non-cash charges such as depreciation. They typically reject or discount add-backs that are undocumented, that represent costs a new owner would need to replace (such as a founder's labor that was never expensed), or that appear to inflate earnings without a genuine business rationale.

What due diligence should I expect when selling my agency?

Due diligence in an agency sale typically covers financial records (three to five years of tax returns, bank statements, and general ledger), client contracts and revenue documentation, key employee agreements and compensation structures, any intellectual property or proprietary assets, outstanding legal matters or liabilities, and operational processes and systems. Being prepared for diligence — with organized, accurate documentation — significantly accelerates the process and reduces buyer uncertainty.

What happens to my employees when I sell my agency?

This varies significantly by buyer type and deal structure. Strategic acquirers (larger agencies or holding companies) typically want to retain key employees and often include retention provisions in the deal. Private equity buyers generally focus on preserving the management team that drove performance. In management buyouts, the leadership team is typically the buyer. In all cases, how you communicate with your team — and when — is one of the most sensitive aspects of the transaction. Your M&A advisor can help you navigate timing and messaging.

What is the difference between a strategic buyer and a financial buyer for my agency?

A strategic buyer — typically a larger agency, holding company, or competitor — acquires your firm because of the capabilities, clients, talent, or market position it adds to their existing platform. A financial buyer — such as a private equity firm or family office — acquires your firm as an investment, typically looking to grow it organically or through additional acquisitions before a future exit. Strategic buyers often pay more upfront because of synergy value; financial buyers may offer more flexible deal structures, including management equity participation.

Glossary of Key Terms

• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. The primary profitability metric used to value agencies in M&A transactions.

• Adjusted EBITDA: EBITDA after adding back non-recurring expenses, excess owner compensation, and other items that would not exist under new ownership. This is the number buyers use to determine value.

• EBITDA Multiple: The number by which adjusted EBITDA is multiplied to arrive at an enterprise value.

• Earnout: A contingent payment structure in which a portion of the purchase price is paid after closing, tied to the acquired company meeting specific financial benchmarks over a defined period.

• Quality of Earnings (QofE): An independent financial analysis that examines whether a company's reported earnings are accurate, sustainable, and representative of the ongoing business.

• Add-Back: An adjustment made to EBITDA to account for expenses that are non-recurring, owner-specific, or otherwise not reflective of the business's normalized earnings.

• Letter of Intent (LOI): A non-binding document that outlines the key terms of a proposed acquisition, including purchase price, deal structure, and exclusivity period, before a definitive agreement is negotiated.

• Management Buyout (MBO): A transaction in which a company's existing management team acquires the business, typically with outside financing.

• Recapitalization: A transaction structure in which the owner sells a majority stake — typically 60–80% — to a financial buyer while retaining an equity interest in the business for a future second exit.

• Earnout Period: The defined timeframe — typically two to four years post-close — during which performance benchmarks are measured to determine earnout payments.
  

About TobinLeff

Owners of leading marketing agencies, PR firms, digital agencies, and professional services businesses trust TobinLeff to sell their firms. We are an investment banking and M&A advisory firm guided by our values of always doing what's right and what needs to be done to produce results.

By combining an extensive network of strategic buyers and private equity partners with hands-on, end-to-end guidance and superior financial acumen, our clients realize outstanding outcomes — strong valuations with buyers whose values, culture, and vision align.

TobinLeff has advised owners through over 250 transactions. If you are thinking about selling your agency in the next two to five years, the best time to start a conversation is before you think you need to.

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