When I sold my agency, I assumed the buyer would spend most of their time looking at our revenue. How much we billed. The size of our client list. The logos on our website.
They spent about twenty minutes on revenue. They spent three weeks on everything else.
The due diligence process taught me more about what makes a business valuable than the previous 13 years of running one. Because buyers do not evaluate agencies the way owners do. Owners think about revenue, reputation, and the quality of the work. Buyers think about risk. Every question they ask, every document they request, every conversation they have with your team is designed to answer one question: what could go wrong after I buy this?
If you understand what buyers are actually looking for, you can start building those things now. Not the week before you go to market. Years before. That is the difference between a multi-7-figure exit and a deal that falls apart in due diligence.
Here are the seven things buyers evaluate. In order of how much weight they carry.
1. EBITDA and Profitability
This is the starting point. Not revenue. Profit.
A buyer’s first filter is your adjusted EBITDA. They will take your reported profit, strip out your owner’s salary, add back any personal expenses running through the business, remove one-off costs, and arrive at the true earning power of the agency.
When my agency was turning over £2.2M, our adjusted EBITDA was running at around 25%. That number mattered far more than the headline revenue. An agency doing £3M with a 10% EBITDA margin is worth less than one doing £1.5M at 25%.
What buyers want to see:
- Adjusted EBITDA of at least £200K (below this, most acquirers are not interested)
- EBITDA margin of 15% or above (20%+ puts you in premium territory)
- Consistent margins over 3 years, not a spike in the last 12 months
- Clean separation between owner compensation and business profit
The margin trend matters as much as the current number. If your EBITDA has grown from 12% to 22% over three years, that tells a story of operational improvement. If it jumped from 10% to 20% in the last six months because you cut costs, a buyer will see through it.
2. Recurring Revenue Percentage
After profitability, the next thing a buyer examines is how predictable your revenue is. They want to know: if you stopped selling today, how much revenue would continue next month?
This is where retainers, contracts, and service agreements become the most valuable asset in your business. An agency with 60% of revenue on 12-month contracts is a fundamentally different proposition to one where every pound is project-based.
In my experience, here is how recurring revenue affects the conversation:
| Recurring Revenue % | Buyer Perception |
|---|---|
| Below 20% | High risk. Multiple drops by 1 to 2 points. |
| 20% to 40% | Acceptable. Standard range for most agencies. |
| 40% to 60% | Attractive. Buyers start competing for the deal. |
| Above 60% | Premium. Top-of-range multiples. Buyers pay for predictability. |
One agency owner I worked with had strong revenue, good margins, but only 15% recurring. The first three buyers all walked away. Not because the business was bad. Because the risk was too high. Every month’s revenue depended entirely on new sales. That is not a business a buyer wants to inherit.
3. Owner Dependence (Key-Person Risk)
This is the factor that kills more agency deals than any other.
If you are the one selling the work, managing the key clients, directing the creative output, and making every operational decision, a buyer has a problem. They are not buying a business. They are buying you. And you are about to leave.
The buyer who acquired my agency asked me a question that stuck with me: “If you were hit by a bus tomorrow, what happens on Monday morning?” I could answer it. We had a leadership team. Client relationships were distributed. Systems documented the key processes. That answer was worth hundreds of thousands of pounds in valuation.
What buyers test for:
- Can the business operate for 4 weeks without the owner?
- Are client relationships held by the team, not just the founder?
- Is there a second-in-command who can make decisions?
- Are sales dependent on the owner’s personal network?
During due diligence, the buyer spoke to three of our clients without me in the room. They wanted to know: do these clients have a relationship with the agency, or with Connor? If the answer had been “with Connor,” the deal structure would have shifted heavily toward an earnout. Meaning I would have been locked in for years to protect the buyer’s investment.
Where does your agency stand? Take the free Agency Valuation Calculator to see how owner dependence and six other factors affect your valuation. It takes five minutes and gives you a clear number to work from.
4. Client Concentration
Buyers run a simple calculation: what percentage of your revenue comes from your top client? Your top three? Your top five?
The thresholds are straightforward:
| Concentration Level | Buyer Reaction |
|---|---|
| No client above 15% of revenue | Ideal. Low risk. |
| Largest client 15% to 25% | Acceptable with strong contracts. |
| Largest client 25% to 40% | Discount applied. Earnout likely tied to retention. |
| Largest client above 40% | Most buyers walk away. |
I learned this one the hard way, years before I sold. My agency’s biggest client was contributing about 35% of our revenue. When they took the work in-house, we lost a third of our income in 60 days. It took over a year to recover. A buyer looking at our books at that point would have seen a crater.
By the time we went to market, no single client was above 12%. That was deliberate. Every time we won a large client, we made sure to grow the rest of the base proportionally. Diversification is not just good business practice. It is exit preparation.
5. Team Structure and Retention
Buyers are acquiring your team as much as your client list. In a service business, the people are the product. If those people leave after the acquisition, the buyer has bought an empty shell.
What buyers evaluate:
- Staff turnover rate (below 15% annually is healthy for agencies)
- Average tenure (the longer, the better)
- Employment contracts (notice periods, non-competes, IP assignment)
- Key person dependencies beyond the owner (if your lead developer or creative director is irreplaceable, that is a risk)
- Compensation benchmarks (are salaries competitive, or is the team underpaid and likely to leave for better offers?)
When I was preparing to sell, the buyer spent a full afternoon reviewing our team structure. They wanted to see an org chart, job descriptions, reporting lines, and salary benchmarks. They asked about each senior team member individually: how long they had been with us, what their career goals were, whether they had equity or retention incentives.
One thing that surprised me: the buyer cared more about middle management than senior leadership. A strong creative director is valuable, but the account managers and project leads who keep client work running day to day are what hold the business together. If those people are stable and well compensated, a buyer feels confident that operations will continue after the handover.
Sound familiar? You build the business around yourself, then realise the buyer wants it to work without you.
6. Systems, Processes, and Repeatability
A buyer is not just paying for this year’s profit. They are paying for the ability to generate that profit again next year and the year after. That means your agency needs to be repeatable.
Repeatable means: a new employee can follow documented processes to deliver work at the same standard. Client onboarding follows a defined workflow. Projects use templates and checklists. Quality control happens at specific checkpoints, not just when someone remembers.
Systems buyers look for:
- Documented workflows for client onboarding, project delivery, and offboarding
- Project management tools with consistent usage across the team
- Financial reporting that is current and accurate (monthly management accounts, not annual)
- CRM with pipeline data showing sales velocity and conversion rates
- Standard operating procedures for recurring deliverables
During my sale, the buyer asked to see our project management system. They spent two hours going through completed projects, looking at how consistently we followed our own processes. Were timelines tracked? Were budgets monitored? Were client approvals documented? They were not evaluating the quality of the work. They were evaluating the reliability of the system that produced it.
Agencies that run on talent and instinct sell for less than agencies that run on systems and processes. Talent leaves. Systems stay.
7. Growth Trajectory
The final factor is momentum. Buyers are purchasing the future, not just the present. A flat business with great margins is worth less than a growing one with good margins.
What buyers look at:
- Revenue growth rate over 3 years (15 to 20% annual growth is attractive)
- EBITDA growth rate (are margins improving alongside revenue?)
- New client acquisition rate and pipeline strength
- Service line expansion or market development
- Whether growth is organic or driven by one-off wins
A buyer told me once that the ideal acquisition target is a business that is growing steadily but has not yet invested in the infrastructure to scale further. The buyer sees the opportunity to add operational rigour, capital, or complementary services and accelerate that growth. That upside is what justifies paying a premium.
If your growth has stalled, it does not mean you cannot sell. But it means the buyer will negotiate harder on price and structure more of the deal as an earnout tied to future performance.
How These Seven Factors Work Together
No buyer evaluates any of these in isolation. They build a composite picture. Strong EBITDA with high owner dependence? The profit is real but fragile. Great recurring revenue with poor team retention? The contracts are valuable but the delivery is at risk.
The agencies that command the highest multiples score well across all seven. That does not mean perfection. It means there are no glaring weaknesses that give a buyer leverage to discount the price.
Here is a rough weighting based on what I have seen in UK agency acquisitions:
| Factor | Approximate Weight |
|---|---|
| EBITDA and profitability | 25% |
| Recurring revenue | 20% |
| Owner dependence | 20% |
| Client concentration | 15% |
| Team structure and retention | 10% |
| Systems and processes | 5% |
| Growth trajectory | 5% |
Those last two might look small, but they act as multipliers. Strong systems amplify the value of everything above them. Growth trajectory determines whether a buyer applies the bottom, middle, or top of the multiple range for your sector.
What to Do With This Information
If you are thinking about selling in the next one to three years, audit yourself against these seven criteria. Be honest about where the gaps are.
- Calculate your adjusted EBITDA and margin. If it is below 15%, that is the first thing to fix.
- Measure your recurring revenue percentage. If it is below 30%, start transitioning project clients to retainers.
- Test your owner dependence. Can you take four weeks off without the business suffering? If not, start building the leadership layer beneath you.
- Check your client concentration. If any client is above 20% of revenue, diversify actively.
- Review your team stability. High turnover or underpaid staff will surface in due diligence. Fix it before a buyer finds it.
- Document your processes. If the knowledge is in your head, it is not an asset. Write it down.
- Look at your growth trend. Two years of consistent growth tells a better story than a last-minute spike.
These are not quick fixes. Most take 12 to 24 months to address properly. Which is exactly why exit planning starts years before the exit itself. The owners who build these factors into their businesses from the start do not just get better valuations. They run better businesses along the way.
Further Reading
For sector-specific valuation benchmarks, see the EBITDA multiples by industry guide.
If recurring revenue is your biggest gap, the agency recurring revenue article covers the full system for building a retainer base.
For the complete exit process from start to finish, read the exit planning guide.
Take the free Agency Valuation Calculator to see how your agency scores across all seven buyer criteria. It takes five minutes and gives you a clear picture of where to focus. If the gaps are significant and you want structured support to close them, book a discovery call to discuss the Strategic Growth Programme or Exit Advisory service.