How to buy a marketing agency (and check the numbers first)
Short answer
To buy a marketing agency, separate retainer revenue from project revenue, check every client's tenure, contract terms and notice period, measure gross margin by client after staff and contractor time, and find out who wins and keeps the clients. In many small agencies, that's the founder, which means the business you're buying can walk out with them.
Price around what will stay: retained clients served by people who will remain.
Agencies sell expertise and relationships. Both are portable, which is the central problem when you buy one.
Separate the revenue
| Revenue | Quality | Check |
|---|---|---|
| Monthly retainers | Best, if contracts are real | Term, notice period, tenure |
| Projects | Lumpy | Repeat clients vs one-offs |
| Media pass-through | Revenue without margin | Strip out to see true agency revenue |
| Performance fees | Volatile | Formula and history |
Worked example: fee revenue and margin by client
Illustrative example, not a real agency
An agency bills $1,600,000. $500,000 is media spend passed through to clients at cost, so fee revenue is $1,100,000. Client A pays $25,000 a month in fees ($300,000 a year, 27% of fees) and uses about 300 staff hours a month; at a loaded cost of $55 an hour that's $198,000 a year, leaving $102,000 (34%). Client B pays $8,000 a month ($96,000) and uses 60 hours a month ($39,600), leaving $56,400 (59%). Client A is the biggest account and the least profitable per dollar, and it's 27% of fees. If it leaves, the agency loses $102,000 of margin and has a team with nothing to do. Margin by client, from time tracking, is the most useful report an agency can give you, and many small ones have to build it for the first time during diligence.
Where agency deals go wrong
- Founder-led sales. If the founder brings in every new client, growth stops when they leave.
- Client concentration. One or two clients often make up a large share of revenue.
- Contractor dependence. Freelancers who do the work can follow the client. Check classification and non-solicits.
- Short notice periods. A "retainer" with 30-day notice is a monthly renewal.
- Account ownership. If the agency owns the client's ad accounts, transfer is messy; if the client owns them, switching agencies is easy.
Documents to request
- Client list with fees by month for 24+ months, start dates, contracts.
- Time tracking by client and team member.
- Staff and contractor list, rates, agreements.
- Pipeline and win history: who sourced each client.
- Tools and subscriptions; who owns them.
Structure matters in agency deals: a meaningful seller note, a long founder transition and client introductions help keep what you're paying for. See valuing goodwill and customer concentration.
Founder dependence and how deals handle it
In many small agencies the founder sells every new client, owns the senior relationships and sets the creative direction. Ask the seller to list, for each top client, who the client's main contact talks to and who would get the call if something went wrong. If the answer is the founder for most of them, the real asset is a transition plan: months of joint meetings, an account lead each client already knows, and a seller who's paid in a way that rewards clients staying. In SBA-financed deals, seller earnouts aren't allowed and the seller can consult for up to 24 months but can't stay as an employee, so the structure usually relies on a seller note, a careful price and a long consulting agreement.
Contracts, contractors and IP
Read every client agreement for term, notice period, assignment and who owns the work. Many agencies use freelancers; check that contractor agreements assign rights in the work to the agency, otherwise the agency may not own what it delivered to clients. Check contractor classification against IRS guidance, and whether key freelancers would follow the founder.
Worked example: client retention after a sale
Illustrative example, not typical retention
Fee revenue is $1,100,000 across 14 clients. The founder personally leads 6 of them, worth $620,000. If, after the sale, 2 of the founder's clients leave in the first year ($210,000) and 1 of the others ($60,000), fee revenue falls to $830,000, a 25% drop. With staff costs mostly fixed in the short term, profit falls further than revenue. A buyer who priced the agency on $1,100,000 of fees pays for $270,000 that left. Agree a transition plan where the founder introduces an account lead to each personal client before closing, and structure part of the price so the seller shares this risk, within your lender's rules.
What moves the value of an agency
We don't value deals or publish multiples we can't verify. Appraisers and lenders weigh these factors:
| Factor | Supports a higher value | Pulls it lower |
|---|---|---|
| Revenue type | Retainers with notice periods | Projects and one-off campaigns |
| Client tenure | Clients of several years | Most clients won in the last year |
| Concentration | No client a large share of fees | One or two clients dominate |
| Founder role | Account leads own relationships | Founder sells and serves every client |
| Margin | Tracked by client, healthy | Unknown, staff over-servicing big clients |
| Team | Employees with IP assignment and non-solicits | Freelancers who could follow the founder |
Red flags specific to agencies
- Gross billings presented as revenue, including media pass-through.
- Clients on 30-day notice with no history of renewing after a change.
- A founder whose personal brand is the agency's marketing.
- Work delivered on accounts the agency doesn't own (ad accounts in the founder's name).
- Overdue client invoices or disputed scopes.
Questions to ask the seller
- What are fee revenue and hours by client for 24 months?
- How long has each top client been with you, and what notice can they give?
- Which clients would you call personal relationships?
- Who sold the last ten new clients?
- Which team members are essential, and are they staying?
- Do contractor agreements assign IP to the agency?
Tools, accounts and access
An agency's delivery often runs through accounts that may not belong to it: client ad accounts, analytics properties, social profiles, website hosting and design files. Make a list of every account the agency uses for each client, who owns it, and who holds admin access. Client-owned accounts stay with the client, so confirm the agency's access will continue after the sale. Agency-owned subscriptions and software licences may need to be transferred or re-contracted in your name. Missing access on day one can stop work for a client, which is a bad way to begin a relationship you just paid for.
Pricing and scope creep
Retainers often drift: the client pays the same fee while asking for more work each year. Compare hours logged against each retainer over time. A client whose hours have risen while the fee stayed flat is less profitable than the revenue suggests, and resetting the scope is a conversation you will have to have soon after closing.
Before closing, sit in on client meetings with the seller and ask each larger client what they value about the agency. If the answer is the seller personally, plan your transition and price around it.
Ask for time sheets by client for a full year as well. Hours spent compared with fees billed show which clients are profitable, and which retainers need repricing.
Frequently asked questions
Why are agencies risky to buy?
Clients often can leave on 30 days' notice, relationships tend to sit with the founder, and work is done by people (often contractors) who can also leave. Revenue that looks recurring may not be.
What contract terms matter?
Term, notice period, change-of-control or assignment clauses, and whether the client owns the ad accounts and creative assets.
How do I check agency margins?
Time tracking by client against fees, plus contractor and media costs. Media spend passed through to clients inflates revenue without adding profit.
Can earnouts be used to buy an agency?
In non-SBA deals they're common for agencies. In SBA 7(a) acquisitions, seller earnouts are prohibited; buyer rebates or seller notes are used instead.
How do I verify a marketing agency's revenue?
Tie client invoices to bank deposits and the tax return, separating fees from media or pass-through costs billed to clients. Then compare each retainer with the signed agreement and the time tracking or project records that show the work was delivered. Large swings between months usually mean project revenue, not retainers.
How should a marketing agency purchase be structured?
Often with part of the price deferred, through a seller note or, outside SBA financing, a contingent payment tied to client retention, plus a long founder transition. In SBA deals seller earnouts aren't allowed and the seller can consult for up to 24 months, so retention risk is usually handled through price, a seller note and the transition plan.
Sources
- SBA SOP 50 10 8.1, Appendix 15 (earnouts prohibited; QoE contract continuity)
- IRS: Independent contractor or employee?
- US Copyright Office (ownership of creative work)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.