Most digital agency owners dream of selling their business for big money, but the harsh truth is that many agencies aren’t even worth selling. If you don’t have a healthy profit margin, a scalable model, and a real strategy for growth, buyers won’t be interested.
Jonathan Baker, Practice Lead, M&A at Punctuation, has seen it all, agencies that thrive and those that struggle when trying to sell. He breaks down what makes an agency valuable, the biggest mistakes that kill deals, and how to build a business buyers actually want.
But before we proceed, don’t forget that this episode is brought to you by videocasestory.com. Click here if you need help collecting, crafting, and delivering customer stories.
Why Profitability Matters More Than Revenue
Many agency owners think their revenue numbers are impressive, but revenue alone means nothing if there’s no profit. A business that brings in millions but only keeps a fraction of that isn’t attractive to buyers.
Jonathan says a healthy agency should have at least a 20% profit margin, with 30% being ideal. Many agencies operate at dangerously low margins, thinking they’ll “fix it later,” but buyers aren’t interested in businesses that need fixing. If your agency isn’t profitable now, it won’t be profitable when you try to sell.
How Much Should Agency Owners Actually Pay Themselves?
A common mistake agency owners make is underpaying themselves, thinking it will make the business look more profitable. But buyers will calculate the cost of replacing you, and if your salary is artificially low, it can devalue the business.
Jonathan advises that agency owners should pay themselves at least 15% more than their highest-paid employee. If your top team member makes $120K, you should be making at least $138K. Buyers will factor in owner replacement costs, so setting your salary correctly protects your valuation.
The Biggest Growth Mistake Agencies Make Before Selling
A major misconception is that growth comes from offering more services. Many agencies make the mistake of expanding into multiple areas—SEO, PPC, social media, and branding, thinking that a wider offering will make them more valuable.
In reality, the most successful agencies specialize. Buyers are drawn to agencies that have clear positioning, strong authority, and premium pricing. When you try to do everything, you end up competing on price. Agencies that focus on a niche and charge premium rates attract more serious buyers and higher valuations.
The Founder-Led Sales Trap
Many agency owners believe they need to completely remove themselves from sales before selling. Jonathan says this is one of the biggest myths in the industry.
Buyers don’t necessarily expect you to step away entirely, but they do want to see that your agency has a repeatable sales system that doesn’t rely entirely on you. The key is to build a structure where sales can continue without requiring your constant involvement. Instead of hiring an expensive sales director and expecting them to fix your business, focus on creating a process that allows others to take on parts of the sales cycle while you remain involved strategically.
How to Find a Fun and Profitable Niche
Scaling isn’t just about making more money, it’s about building a business you actually enjoy running. Many agency owners create businesses they no longer love, leading to burnout. Jonathan suggests stepping back and identifying the work that is both profitable and fulfilling.
If you could rebuild your agency from scratch, what would you focus on? Which projects and clients have brought the best results and highest margins? Instead of chasing any client that comes along, build your business around the work you enjoy most. Not only will this make your agency easier to run, but it will also make it far more appealing to buyers.
Is Your Agency Sellable?
Selling an agency isn’t an overnight process, it takes 6-12 months of preparation, if not longer. If you’re thinking about selling in the next few years, you need to start preparing now. Buyers look at profitability, positioning, and scalability, and if your agency isn’t strong in these areas, selling it will be difficult.
Jonathan and his team at Punctuation help agency owners understand their true valuation, optimize their business for a sale, and navigate the M&A process. If you want expert guidance, check out punctuation.com/garlic.
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