Creative and brand agency valuation

Business model characteristics

Brand strategy, identity, design and campaign work is typically sold as projects. Some agencies secure ongoing arrangements with clients they have rebranded, extending into guidelines, campaigns and brand management, but the core model is project led. Revenue can therefore be lumpy, and the pipeline is the thing to understand.

Senior creative involvement is usually part of why clients choose the agency. That is a strength in the market and a question in a valuation, because buyers will ask how much of the agency's reputation sits with one or two people.

Value considerations

• Project pipeline. Visibility of committed, probable and possible work, and the agency's track record of converting it. A well-kept pipeline is evidence of discipline as well as demand.
• Repeat clients. The proportion of revenue from clients who have commissioned more than once. Repeat work suggests relationships, not one-off wins.
• Founder and creative-lead dependence. Whether clients would stay if the founders stepped back, and how much of the creative output depends on named individuals.
• Reputation and awards. Valuable to the right buyer, especially one who wants to strengthen creative credentials, but hard to price on its own. Buyers look for the earnings that reputation produces.
• Pricing and margin. Whether the agency commands a premium for its work, and whether that premium reaches the bottom line after senior time is accounted for.
• Fit with a buyer's offer. Brand capability is often acquired to sit alongside digital, performance or experience capabilities. The combination can be worth more to that buyer than the agency alone.

Questions a buyer may explore

• How much of last year's revenue came from clients who had worked with you before?
• What does the pipeline look like for the next two quarters, and how reliable has pipeline forecasting been historically?
• Which projects were led by the founders, and which by other senior people?
• How are senior creatives retained and incentivised?
• How are projects priced, and how often do they overrun?
• What would the business look like, commercially, if the founders moved into group roles?

Preparation points

1. Keep a pipeline record that distinguishes committed, probable and possible work, and review forecast accuracy.
2. Analyse revenue by client and by year to show repeat and expanding relationships.
3. Map creative leadership across projects so that the spread of responsibility is visible.
4. Develop and document a second tier of client and creative leadership, with incentives in place.
5. Record project profitability, including senior time, so that margins can be shown, not assumed.

Frequently asked questions