Digital Marketing Agency Valuation Multiples (Averages from Industry Experts)

In this post, we look at average digital marketing agency valuation multiples, provided by two different M&A advisor firms that specialize in helping agency owners sell their business.

But while these averages can give you a rough idea of your valuation range, both M&A advisor firms we talked to stressed the importance of:

• Getting an accurate valuation range of your specific marketing agency using data from your business, along with industry data like previously closed deals.

• Running a competitive process where your marketing agency is pitched to as many qualified buyers as possible. The more interest in your business, the more likely you’ll get a premium multiple. Plus, you’re more likely to get a better overall exit, in terms of exit timeline, stewardship, and deal structure (such as percentage of cash at close).

Below, we cover:

• Average Valuation Multiples by Agency Size
• Factors Affecting Your Multiple (and How to Maximize Your Value)
• How to Know When It’s the Right Time to Sell
• How to Achieve Your Ideal Exit

Average Valuation Multiples by Agency Size

To get an idea of average valuation multiples by agency size, We spoke to the co-founders of Palmer, an M&A firm that works specifically in marketing, media, technology, and any service-based business with little to no tangible assets, and David Tobin of TobinLeff M&A Advisors, an investment banking firm focused on helping owners of marketing services, technology services, and professional services monetize their business interests.

In the table below, you’ll see a rough estimate of the average multiple range by agency size, as provided by the Palmer team.

David Tobin shared similar averages. Based on data from his agency:

• Agencies with an average adjusted EBITDA of $2.4 million have an average multiple of 6.46x, with some transactions reaching as high as 12x for agencies with strong strategic value. The average selling price in this group was $15.2 million.
• For smaller agencies with an average adjusted EBITDA of around $500,000, the average multiple was 3.33x.

As Tobin further explains, “If an owner is able to identify a buyer that wants them for strategic reasons, then premiums are paid.” These premium multiples often go to agencies with strong brand equity in a specific sector or highly sought-after capabilities. (Learn more about strategic buyers vs. financial buyers here.)

It’s important to note that valuations for marketing agencies are generally based on a multiple of adjusted EBITDA on the trailing 12 months. While revenue multiples exist, they typically serve as a ceiling — around 1x revenue — rather than the primary valuation method.

Why Digital Isn’t Always Premium

Not all digital marketing agencies command the same multiples. As Tobin noted, there’s an important distinction: “Digital agency owners fall into a couple camps. Some of them recognize and appreciate that they own a professional services company. There’s really no IP associated with it. They’re a service firm.”

And for agencies that are purely service-based, “…the multiples are not that much different than well-run public relations, integrated marketing agencies, advertising agencies, creative agencies,” typically ranging from 4.5x to 7x for most midsize to smaller digital agencies.

However, “if there’s truly a tech component to your firm, whether that’s AdTech or MarTech, then you may get a lift on your multiple.”

Factors Affecting Where an Agency Lands in the Range

But what goes into deciding whether an agency with 2 million in EBITDA gets a 4x multiple or a 7x multiple?

When an M&A advisory firm like Palmer or TobinLeff conducts your valuation, they’re going to use different valuation methods to arrive at the most accurate multiple. These methods involve both your company’s details (financial records, key metrics, business history, team structure, etc.) and market-specific information (current buyer demand, economic conditions, previously closed deals in your industry), as well as publicly traded company valuations.

In this space, most advisors use a blend of comparables and precedent transactions to arrive at accurate valuations. They don’t typically use discounted cash flow models because, as Alex Cappelli of Palmer explained, “At businesses of this size, it’s nearly impossible to accurately forecast cash flows five years out and also ascribe a reasonable discount rate.”

Both advisors we spoke to shared which valuation factors affect your multiple range the most. These include:

• EBITDA Margin: TobinLeff recently conducted a study with over 60 buyers of digital and marketing communications agencies, including both strategic buyers and financial sponsors. The number one value driver identified was strong EBITDA margin. As Tobin explained, “Most buyers are seeking companies where that EBITDA margin is greater than 20%.”

• Client Retention and Churn Rate: According to TobinLeff’s study, client retention and churn rate were the second most important drivers for buyers. “Most buyers will really dig deep and go back over the past three to four years, and they’ll study client by client retention slash churn rate.”

• Client Concentration: The Palmer team advises that you “shouldn’t have one client that makes up more than 10% of your revenue or your top three clients making up more than 25% of your revenue.” Having a high client concentration is considered an inherent risk from a buyer’s perspective because if a key client leaves, then the value of your agency is significantly altered. As Ben Engvall put it, “If one client drops off, that’s just kind of the nature of business. It doesn’t ultimately affect the state of the business as it is.” So in short, the higher your client concentration, the lower your multiple.

• Recurring Revenue Nature: Whether the clients are paying on a “one-off project basis” versus having recurring clients affects your multiple. Long-term recurring contracts with “blue chip brands” are much more valuable than constantly having to find small businesses to fill a pipeline. A buyer sees recurring revenue as stable and a safer investment. For example, Clara Stedman says that working with a client like Columbia University for a decade at a million dollars per year is far more valuable than “a bunch of smaller clients that are constantly rolling off where you have to eat what you kill every single month.”

• Growth Vision: Tobin’s study revealed that “a vision for growth, a clear path for growth” was a strong driver for buyers. This means demonstrating not just past performance, but a sustainable engine for future growth.

• Revenue Growth and Profile: Buyers want to see year-over-year revenue growth. The revenue profile examines how the revenue is generated, with a focus on long-term contracts and short-term client churn. This can be key when it comes to timing your exit. If you’re projecting a strong year ahead, then that could be a good time to sell if it allows you to show year-over-year revenue growth. Tobin’s study confirmed this, identifying recurring revenue as a strong driver that goes “hand-in-hand” with client retention.

• Tenure of Clients: It is more valuable to be working with a client for a decade with a significant annual payment than having smaller clients that are “constantly rolling off.” Again, this is about demonstrating reliability and stability to buyers.

• Business Development Processes: Many agencies are founder-dependent, meaning their growth relies heavily on the founder as the primary sales organization. A buyer looks for inbound/outbound processes to mitigate the risk of business growth stopping if the founder leaves. The Palmer team emphasized that buyers want to understand: “If a founder leaves and all of their leads are coming from word-of-mouth referrals, what happens to the growth of the business moving forward?”

• Key Person Risk (Founder Dependency): As Tobin noted, “Depending upon the size of the agency, the dependency on the selling stakeholders becomes a really important factor.” He explained that buyers want to know “how involved are those owner stakeholders in the new business process?” If the company is heavily dependent on founders to land new business, “it becomes a factor that’s addressed through the deal structure,” often including earnout provisions tied to future performance.

• Team Structure (Key Person Risk): Buyers assess the management team. If the founder runs sales and client relationships, they should be prepared to provide a transition period of at least 6 to 12 months after the transaction is over. It is advantageous to demonstrate to the buyer that employees other than the founder manage the client relationships. As Alex Cappelli explained: “It’s easier to show a prospective buyer that you have a strong team in place that handles client relationships — that clients aren’t staying with your firm because of you, but because of your team.”

• Industry Niche: Whether the agency is doing “everything for everyone” or focusing on a specific service line or industry allows a buyer to see exactly how the business fits into their existing platform or ecosystem. Having a clear niche helps buyers understand “exactly how this fits into my existing ecosystem, my existing platform or my own business itself.” Tobin told us that premiums are often paid when “the seller has brand equity in a certain sector” with “really strong specific capabilities.”

The overall valuation exercise is viewed as an exercise in risk. The simpler and less risky a business seems to a buyer, the more they are willing to pay.

Why Marketing Agencies Are Valued Differently

Unlike businesses with tangible assets like equipment or inventory, marketing agencies are people-focused businesses. As Ben Engvall explained, “In this space, buyers are acquiring people. This means that culture, team dynamics, and client relationships play an outsized role in valuations compared to other industries.”

This people-first nature also affects the sales process. Engvall says that “founders or sellers in this space play a much larger role in the sales process because of that — they have to speak to buyers and generate some of that interest personally through those conversations.”

How to Maximize Value and Get the Multiple You Need to Exit

If you get your agency valued, but you’re not valued at the multiple that you need to exit, what do you do?

There are actionable steps you can take, based on the key factors above, such as:

• Work to lower client concentration
• Strategically time your exit so you’re showing year-over-year growth
• Work on building your team up, so buyers are not as worried about your exit as the founder
• Improve your EBITDA margins

But how much these changes actually impact your multiple — and whether they’re worth the needed investment — depends on your business, your specific niche, and your overall exit goals.

In the Palmer team’s experience, the two most important factors buyers look at are client concentration and the recurring nature of revenue.

These are the primary drivers of value and the areas where improvements will have the most impact on your multiple.

Tobin emphasized that for agencies with time before selling, “improving margins is key.” He explained that “the compensation expense in relation to fee income typically is the biggest driver to the net income margin,” and operating at “20 plus percent, 30%, even 40%” EBITDA margin provides the needed leverage margin for buyers to get a return on invested capital.”

Tobin also stressed the importance of demonstrating sustainable growth: “Having a system for generating leads and converting them into client engagements becomes part of the storyline that this is an engine that will continue to grow even under new ownership.”

These are the kind of insights you can get when working with an M&A advisor. That’s why you want to work with an M&A advisor who has experience in selling agencies like yours, because your specific roadmap will depend on your business, your exit goals, and the types of buyers interested in your agency.

To help create a strategic plan that maximizes value and facilitates an exit, Palmer offers consulting services to develop a roadmap.

“We can provide a valuation in M&A consulting where we really take a deep dive with the agency or business… and what we do is kind of call out, okay, you have a 12-month road map. These are the three specific things or five, seven, whatever they’re really looking for that I would really focus on that will actually change your valuation to get to that point.”

This consulting service is separate from their M&A advisory work. It’s designed for agency owners looking to sell in the next one to five years and want a clear plan to maximize their value before going to market.

Similarly, TobinLeff offers exit planning and preparation services, with Tobin sharing that “We help a percentage of our clients prepare for a future liquidity event and build value where we believe we can based on our experience.”

How to Know When It’s the Right Time to Sell

When figuring out when to sell your digital marketing agency to maximize your deal outcomes, you want to time your exit so:

• You have a strong team in place. Generally, when buyers buy digital marketing agencies, they’re buying relationships and people, not tangible goods.

  Unlike industries where assets are easily replaceable, marketing agencies depend on the retention of key talent — from senior account managers to creative directors — who maintain client relationships and deliver the specialized services that define the agency’s value.

• You have realistic expectations about valuation. Sometimes, timing your exit means recognizing that you’re not quite ready. As Tobin shared with us, some owners find that “the sale won’t produce the needed net after tax proceeds and they explore if there is a way to be worth more in 6 months, 12 months or will it take longer?” Working with an M&A advisor early can help you understand whether now is the right time or if strategic improvements could significantly increase your value.
• You can go to market with agency growth still ahead. You want to go to market when you know that you have growth ahead. This lets you present strong financials to buyers and show year-over-year growth that leads to higher multiples.
• You can maintain performance as your business is on the market. If you spend too much time managing your exit and not maintaining business operations, your business may suffer, which can lead to lower multiples. Ben Engvall of Palmer explained, “One of the largest indicators of success in closing a transaction is business performance while you’re on market.” If your business performs well while on the market, it reinforces positive opinions buyers have about your agency.

  Conversely, if the business falters during the process, “any of the questions the buyer may have had or any of the red spots they may have seen going into the business will only be highlighted.”

  Working with the right M&A advisor makes all the difference here. They’ll carry the heavy lifting of navigating your exit, making it easier for you to focus on your business.

• You’re prepared to provide a transition period of 6 to 12 months. You don’t want to go to the market when you’re already burnt out. For digital marketing agencies, it’s normal to be expected to stay on for 6–12 months after the exit and help with the transition. Clara Stedman from Palmer puts it this way, “You still have some gas left in the tank once you go to market and start that listing process because buyers don’t want a founder to leave day one if they are having the client relationships, running the sales process.”

How to Achieve Your Ideal Exit with the Right M&A Advisor

Once you’re ready to sell your business, the best thing you can do is work with the right M&A advisor.

M&A advisors will:

• Verify your financials and business records are buyer-ready.
• Conduct a valuation to arrive at your most accurate multiple.
• Create marketing materials highlighting the value of your agency.
• Use their network of vetted buyers to create a competitive bidding process. As one of Palmer’s co-founders shared, you’ll ideally have 7–8 interested buyers ready to make a deal — but reaching that point often requires marketing your business to hundreds of potential buyers.

When you’re looking for M&A advisors, you want to focus on ones with recent and relevant industry experience and a proven track record of creating a competitive bidding process and closing deals.

Why Industry Experience Matters

Working with an M&A advisor who specializes in marketing services provides distinct advantages. As Tobin explained, “Somebody that specializes in a sector has case studies and industry experience. They have an appreciation for what buyers for those types of companies seek, how to package and position the company properly through the CIM, through the teaser letters. That all comes from experience, knowing what typically will rise above the fray when there’s competition with teaser letters coming through.”

This specialization also means having established buyer relationships.

“Any group that has experience, especially if they’re sector driven, develops relationships over time with prospective buyers. They know where to look. They know what companies to target based on the size of the company that’s being sold. It’s relationships and experiences that somebody would not be able to replicate if they tried to do it on their own.”

Creating a Competitive Bidding Process

A key benefit of working with M&A advisors like Palmer and TobinLeff is that they can create a competitive bidding process for your agency. They can do this in part because they have a large network of serious buyers who have historically acquired other companies. This is why finding the right M&A advisor is key – you want them to have a network of contacts that would be interested in an agency like yours.

Palmer markets to their database of over 50,000 buyers in the marketing services space, typically reaching out to 10,000+ potential buyers per listing. They vet buyers before you ever speak to them, so by the time you connect with a buyer, they’re already qualified.

The Palmer team aims to have sellers meet with 7–10 qualified buyers. These initial conversations typically convert to letters of intent at about a 40% rate.

TobinLeff M&A advisors follow a similar comprehensive approach. As Tobin described in our interview, “Our goal is to bring owners 3–6 offers from qualified buyers to consider.”

He went on to add that to get that many qualified offers requires an extensive M&A process. “We typically will need to arrange meetings with 10 to 15 groups. To get let’s say 15 meetings like that, we have to have 60 plus NDAs signed. We have to go out to 300 to 600 target suspects.”

The goal of the competitor process is to create leverage. As Tobin elaborates, “if we have opportunities where we have multiple offers from qualified buyers, then we have leverage to push back on earnouts, for example. And if there is going to be an earnout, we have more leverage on dictating the terms.”

The problem that many agency owners face is finding M&A advisors like Palmer or TobinLeff. Agency owners aren’t sure which M&A advisor is the best for their agency. That’s what we help with at Axial.

Our Data-Driven Approach to M&A Advisor Matching

At Axial, we have over 3,000 M&A advisors and investment banks within our network. Rather than providing generic referrals, we analyze each M&A advisor’s transaction history within our network to understand their specific expertise. For marketing agencies, this means identifying M&A advisors who understand marketing services industry valuations, know the nuances of agency due diligence, and have relationships with buyers actively acquiring marketing and creative services companies.

We examine factors like the M&A advisor’s experience with businesses of your size, their familiarity with your service offerings or market vertical, and their success rate in closing marketing agency transactions at competitive valuations.

How We Evaluate M&A Advisors Based on Relevant Experience, Down-Funnel Success, and Professionalism

Our evaluation process considers three critical factors:

• Relevant deal experience: We prioritize M&A advisors who have successfully sold marketing agencies similar to yours in terms of size, business model, and market. This includes analyzing the total number of relevant deals they’ve completed on Axial, with priority given to transactions from the last 24 months. That way, you’re getting an M&A advisor with recent and relevant experience.

• Down-funnel success: We track each M&A advisor’s ability to convert buyer interest into actual offers. We do this by tracking metrics like the number of qualified bids generated per transaction, the percentage of deals that reach the LOI stage, and their success rate in closing transactions once under contract.

• Professionalism and reputation: We consider feedback from both buyers and sellers who have worked with each M&A advisor, including responsiveness scores, communication effectiveness, and overall satisfaction ratings from previous transactions.

The Curated Shortlist Process

We start by pairing you with an Exit Consultant who understands your business and exit goals. Your consultant will leverage Axial’s network of over 3,000 M&A advisors and investment banks to create a shortlist of 3–5 candidates specifically qualified to handle your marketing agency sale.

Each M&A advisor on your shortlist will have demonstrated expertise in marketing services transactions, proven ability to generate competitive interest, and strong professional reputation within our network. We provide detailed insights about each candidate to help you evaluate your options and prepare for M&A advisor interviews.

Our Exit Consultants have successfully connected marketing agency owners with advisors who specialize in understanding marketing services industry dynamics, including the shift toward private equity interest and the growing demand from strategic buyers seeking to expand their service capabilities and geographic reach.

Schedule your free Exit Consultation today.

FAQs

What are the Common Deal Structures for Digital Marketing Agencies?

Typical deal structures for marketing agencies include 50–80% cash at closing, with the remaining portion being either seller financing or an earnout. Based on TobinLeff’s recent transactions, agencies with an average EBITDA of $2.4 million saw approximately 59% of the purchase price paid at closing, with many deals including both rollover equity and earnout provisions.

It’s important to understand that not all deals are 100% exits. Many agency owners, especially those looking to grow rather than retire, can sell a majority stake while rolling some equity into the new entity. This allows them to participate in a “second bite of the apple” when the business is sold again at a higher valuation down the road. As Tobin noted, over the past three to five years, for digital agencies with EBITDA of $2 million or more, “while sometimes there’s a small earnout component, what we’re seeing more of is a mix of cash at close and rollover equity.”

How Do Earnout Structures Work for Digital Marketing Agencies?

Earnouts typically span three years, although TobinLeff’s current transactions include earnouts that range from 1–5 years.

Most earnouts benchmark either EBITDA or adjusted gross income (AGI), which is total revenue minus media buys. As Tobin explained, “Buyers typically prefer an EBITDA-based earnout. Sellers prefer a topline earnout because the sellers are concerned about whether they truly control the P&L statement during that time period. They worry there will be variables out of their control.”

Often, earnouts are used to bridge a valuation gap, but that isn’t the only time earnouts are discussed. Tobin identified two other primary drivers: “First, there’s the buyer’s concern: what happens post-closing if the owners move on to whatever is next in their career? So a buyer may use an earnout, not so much to bridge the perceived valuation, but to safeguard what happens under a change of ownership. The second is it’s an inexpensive way to finance part of the transaction by using part of the seller’s money, future earnings.”

When Should I Start Thinking About Selling My Agency?

Even if you’re not ready to sell for another 5–10 years, the Palmer team recommends having conversations with M&A advisors now. Understanding where the market is today, what current valuation multiples are, and what’s important to focus on helps you make better strategic decisions for your business.

As Clara Stedman of Palmer M&A Advisors put it: “You never know when the ideal time will be — market dynamics, buyer demand, and personal motivations change. It’s good to know what your agency is worth and what kind of deal you’ll likely get.”

David Tobin recommends that “owners get a valuation done early and often. Even if you’re not thinking of selling for another 5–7 years, getting an accurate valuation will help create a roadmap to selling your business and achieving your ideal exit.”

For more information, read Axial’s guide on when to sell your business.

How Much Do M&A Advisors Charge to Sell a Business?

The data below is based on a survey we conducted with M&A advisors and business brokers within the Axial network.

M&A advisor fees typically consist of two components: a retainer fee and a success fee.

Retainer fees vary significantly, with some advisors charging fixed upfront fees (typically ranging from $5,000 to $50,000), while others use monthly retainers ($5,000–$10,000 per month is most common) or milestone-based structures. About 24% of advisors work without any retainer, earning compensation only when the deal closes.

Success fees are commonly structured using the Lehman Formula, which 50% of brokers use. This structure charges 5% on the first $1 million of the purchase price, 4% on the second million, 3% on the third, 2% on the fourth, and 1% above $4 million. Another 33% of advisors use flat percentage structures (typically 3–5% of the total purchase price), while 17% use accelerator formulas where fees increase with deal size.

While these fees may seem substantial, data shows that businesses represented by advisors sell for 6–25% more than those sold by owners directly. Additionally, business owners who self-represent have a 60–70% lower chance of successfully selling their business compared to those who work with M&A advisors. When you factor in the time savings (30+ hours per week during the M&A process) and the higher probability of closing a deal, the advisor fees are typically well worth the investment.

Read the full report here: M&A Annual Fee Guide

How to Value a Digital Marketing Agency?

Digital marketing agencies are valued using a multiple of adjusted EBITDA on the trailing 12 months. M&A advisors typically use a blend of two primary methods: comparable company analysis and precedent transaction analysis.

Comparable company analysis benchmarks your agency against similar businesses in the marketing services space, considering factors like size, growth rate, service offerings, client base, and geographic market. The challenge for smaller agencies is finding truly comparable companies, which is where an advisor’s industry experience becomes invaluable. They can analyze larger publicly traded agencies and adjust valuations to account for differences in size.

Precedent transaction analysis examines the actual purchase prices of similar marketing agencies that have recently sold. This provides real-world data on what buyers are actually willing to pay. However, because most agency transactions are private, this data is difficult to access without working with an M&A advisor who has insider knowledge of recent deals.

As Tobin shared in our interview, his firm has access to “hundreds of transactions and valuations” accumulated over 15 years in the space, allowing them to show clients where they fall “on the lower end of the likely spectrum” versus where “strong companies might be on the higher end or even go above market.”

Unlike larger businesses, marketing agencies typically don’t use discounted cash flow (DCF) models because it’s nearly impossible to accurately forecast cash flows five years out for businesses of this size. The combination of comparables and precedent transactions provides a more accurate valuation range that reflects both your agency’s intrinsic value and current market conditions.

What Types of Buyers are Buying Digital Marketing Agencies?

The buyer landscape varies by agency size. According to Tobin, “Agencies that have a value of 15 to 50 million of enterprise value, most are being sold to either a strategic owned by a private equity group/financial sponsor or they’re big enough to form a platform with a financial sponsor.” He noted that eight of their last 12 transactions fit this profile.

For smaller agencies valued at $5 million to $15 million, “most of those deals are going to strategics, sometimes add-ons to a platform if they’re in the 10 million plus, but in that size range, 80% of our deals are going to strategics.”