Episode Transcript
[00:00:00] Speaker A: Is my agency sellable? Can I sell my agency and if so, how much is it worth?
[00:00:05] Speaker B: A lot of times, let's see. I mean, we've done acquisitions with people that have had businesses with as small as 20 or 30 clients. So you don't have to be huge to sell. I mean, for us it's just adding more volume to our pool. Right?
[00:00:22] Speaker A: Welcome to the Agency Hour podcast where we help digital agency owners create abundance for themselves, their teams and their communities.
This week we're hanging out with the founder and CEO of Mule Town Digital and a very good friend of mine, Adam Silverman. Mule Town Digital are a full service digital marketing agency based in Columbia, Tennessee. They specialise in building high performing websites, driving traffic through SEO and PPC and helping businesses convert that traffic into real sales. Adam is also one of our agency coaches and is an absolute rockstar, literally.
As well as within the agency Mavericks community. He was a professional touring drummer before he started an agency and we're gonna talk about that. This week. We're exploring strategic agency acquisitions. We discuss the formula for market leadership, when to grow your agency, when to sell it, how to truly value an agency, and a whole lot more. I'm Troy Dean. Stay with us.
Well, ladies and gentlemen, I imagine we're probably gonna lose some listeners to the podcast as a result of this episode because this is a truth bomb. It's a come to Jesus moment. My guest this week on the agenc hour is Adam Silverman from your town digital. Mr. Silverman, welcome to the Agency Hour.
[00:01:35] Speaker B: Thanks man. It's good to be here.
[00:01:37] Speaker A: What's going on in your world? Before we, before I offend everyone and lose half our listenership? What's going on in your world? You're currently sitting in your drum studio. Talk us through what's happening.
[00:01:47] Speaker B: Yeah, I've been at drum studio. We're, we're moving offices. So we've gone to a bigger office like on the, in the same building that we're in, but like the other side of the building and they had to pull the meter off the inside like, and redo the box. And so that job, which we thought was going to be done already, is not done yet. So the building has power, like flickering on and off basically all day. So I was like, you know, I think I'm going to just hang out in the drum studio tonight and stay out of that mess.
[00:02:19] Speaker A: Oh, that's awesome. I love it. Now, quick background for people who don't know. Adam was a professional Turing drummer at one point was kind of, you know, Watching his kids grow up on Zoom or Skype or FaceTime and decided to, kind of decided to pack that in. Was learning to build websites and code websites while you're on the road in the downtime, because there's lots of downtime when you're a touring musician. Started an agency called Mule Town Digital, lied about your income so that you could join our program, went through our program, have elevated and grown dramatically. You've coached here at Agency Mavericks and now you're in the position of acquiring other agencies. Is that, is that a fair summary of your journey so far?
[00:03:02] Speaker B: Yeah, I mean, pretty much. I definitely lied to get into Mavericks and I'm glad that I did. It was, it was a, it was a. You know, I, I remember thinking back to it when all those questions came up and it was like, had the funds to do it, you know, So I felt okay about, you know, kind of jumping in, but it was definitely overwhelming at first. You know, I walked in there and there were, there were people that really knew what they were doing and had, you know, 10, 12 years of experience. And I'm like, oh, here I am, like six months in. Like, sure, let's just dive in with all the snakes, you know, but, but no, I'm glad I did it. It really like fast tracked the learning curve, you know.
[00:03:41] Speaker A: Yeah, yeah, that's great.
Right?
So this is what you've all been waiting for. I'm about to drop a truth one. I've been thinking about this a lot. Like, what is it that defines a business owner from a technician who is self employed?
And I will say this, for a long time I was a technician who was self employed when I started. And I'm going to walk you through my definition in a minute. And some people are going to be hurt by this. And that's okay. I'm almost 52. I don't care.
For a long time I was a technician and I was self employed and eventually I became a business owner. And a lot of my thinking around this has been reignited by the survey of 1200 plus WordPress professionals that was run by Kyle at the admin bar Facebook group.
And the results were, you know, shocking is most people, 75% of people in that survey are working in their agency. I'm putting the word agency in air quotes. Working in their agency full time. 75% of those people are working full time and they are, they consider themselves growing, yet they're paying themselves less than 50 grand a year.
Right.
So here's so, so, you know, let's Just call a spade a spade. At that point you're not an agency. At that point you are a technician or a freelancer and you are self employed. And sure, you might get some tax benefits from being self employed, but you're not a business owner. Here's my definition of a business owner. If you own an entity, a legal entity, an LLC or a S Corp or in Australia, a P2O Ltd, if you own a legal entity, that protects you as an individual from being sued, right?
So if you invoice people through a legal entity and clients pay that legal entity, that's the first criteria. The second criteria is if that entity has its own bank accounts that are not your personal bank accounts, that's the second criteria. Third criteria is this. And this is where shit gets interesting.
If you earn enough revenue that you can hire at least one team member, doesn't have to be full time, it doesn't have to be in the same country that you live in, but you need to be able to afford to pay at least one team member to do some things. And I'm not just talking about paying a VA six hours a month to do your books, right? That doesn't count. I'm talking about actually hiring someone, somewhere that can do some critical tasks in the business that mean it then doesn't rely on you, right?
Plus.
Plus you need to be able to pay yourself enough for you to be able to survive and meet all of your needs around housing, food, clothing, all your basic needs, right? And save 30% of your income.
So if your basic lifestyle requires you to earn, I'm just gonna make some numbers up. Let's say you pay rent or you've got a small mortgage or whatever your situation is and you need $5,000 a month to survive, right?
Well, you need to be earning.
I'm gonna add 30% of that. Let's just, you know, round it to $1,600. You need to be earning 6,600amonth once all of your tax is paid. You need to be able to take home 6,600amonth so that you can pay your $5,000 a month for your life to survive and save another 30% of. You know, my math's not quite working out here, but anyway, you get the point. It would actually be 7500amonth, right? Because you're going to earn 7500, you're going to save a third of that 2500 and spend the other two thirds, five grand on, on surviving, right? Plus you're in a position where you're paying someone some amount of money to do some tasks in the business. Now, most people, I'm going to make an assumption that most people listening to this podcast are not paying, are not doing that. They're not saving 30% of their income and they're not paying someone somewhere to do the thing so that they can free up some of their time. And if that's you, then chances are you're a self employed technician. Right? And there's nothing wrong with that.
But I will say you will get to a point, you'll get to a fork in the road where you need to make a decision. And that decision is you either need to put your foot on the pedal, make a decision, make a mental commitment to grow the thing that you've started and to be profitable and to meet that criteria that I've laid out. Otherwise you are putting all of your clients at risk.
You could potentially run out of money and go and have to drive for Uber or get a job at Walmart or take a job with another agency. And you're putting all of your clients at risk by doing that. Right? So you either have to double down, put your big boy panties on and grow the thing so that it turns into a real business, or sell it and just get rid of it. Right?
And so it's up to you. It's your decision.
And I'm not going to sugarcoat it, but I just think, you know, most people have got a job, a self employed technician, and you're working too many hours for too little pay, right. Because you're not sure what else to do with your time.
So if you are in the second camp where you want to sell the thing, this episode is for you. If you want to grow the thing, talk to our team, get connected with some resources and we'll help you grow the thing. If you want to sell the thing, then tune in. Because this is what Adam's doing these days is he's growing his agency by acquiring others.
Adam, any thoughts or comments or, you know, on what I just laid out there?
[00:09:41] Speaker B: Yeah, you know, it's funny, the other day I went back and started listening to the myth. I think it's called the E. Myth Revisited, where they, you know, they talk a lot about that. Like, you know, how people.
Because a lot of people ask me, you know, how do people get into the position with their agency where they want to sell? And the main thing that I see is that people grow to that exact point you're talking about. There's like an inflection point where you realize that to go from being just a technician that kind of has a business, but you're really just a working technician, to go from that into true business owner, entrepreneur world is a very large jump and commitment that I learned in the school of hard knocks. Like, when I started this, my goal was to be that I didn't want to be a technician at all. And so I came into it from the other side. Like, how long do I have to be a technician before I can become a business owner? Was my point. But a lot of people go the opposite way. It's like they really just are running the business to run the business so that they don't have to work for somebody else.
And once you realize how hard that pivot is to get to that next level, to scale up beyond where you're at, I think people get to this place where there's just two choices. They either need to find a program like Agency Mavericks and go get help and invest in themselves and believe in themselves and really grow the business up, or you have to go, man, I shouldn't be doing this. Because a solopreneur that doesn't have any staff that's got even say, 30 or 40 clients, like, those clients are theoretically, you know, if something happens to you or your business, what are your clients going to do? You know, I mean, we've inherited agencies where like, there was a solo owner that had the keys to all these people's stuff. And if. If something happened to them, these. All these businesses would have been going, what do I do? Because there was literally no. No DNS, no nothing. It was just like, we have all these sites across 10 different servers, and if something happens to that key man, all those businesses are in big, big trouble.
And so, you know, I really. Yeah, I do. I totally agree. I think people get to that place and you just. You have to pick a road. You. You can't. You really can't stay where you are because it's like you're. It's just going to come apart on you at some point, you know? Yeah.
[00:12:04] Speaker A: And I think, you know, the. I think that there is the mindset. Like, you came in, it was like, how quickly can I get off the tools and become an entrepreneur? And I think a lot of people are like, how long can I stay on the tools so that I can av. Avoid.
Avoid all the extra responsibility? And you said it. It's a massive shift in your level of commitment, and it's a massive shift in the level of responsibility, and you have to Become a new version of yourself to make that jump. And a lot of people just don't want to do that. A lot of people are scared of doing that. So if you're in the second camp and you just want to sell the thing right, what does an agency need to look like for someone like yourself to be interested in acquiring it? And what are some of the practical things that someone can do who's listening to this to get themselves ready?
[00:12:50] Speaker B: Yeah, I mean for us the, the biggest thing ultimately is how well the agency is documented, their clients. That, that's probably the biggest thing. So if you use a tool like Airtable or I mean, I guess soon you could do it all and go high level. I don't really think it matters. But having really strong records about who your clients are, their contact, their technology, your logins to things like that stuff really creates problems when you go to sell if you don't have it organized because you're then trying to hand off something and it's like, oh, well, we've got, you know, nine sites in Kinston, 10 and this and eight and this and three over here. And my mom's aunt's best friend has this one on a site, brown Box or whatever. Like that stuff really creates problems when you go to sell because that's all you basically made liability there because you're spread out across all these platforms and you're not documented. And so for an agency like ours to come and make a purchase on it, we don't really want to take on a liability. We want to take on something that's got a good client pool that we can work with and, and grow that client pool.
So whether you're a WordPress or Shopify or Duda or Wix or it doesn't. We basically work with all the tech stacks. So that is not really a thing for us. We're really looking for clients that, you know, that, that need the services and for the agency to be organized, those are probably like the biggest things that we're trying to get sort in.
[00:14:27] Speaker A: Got it. And so it's not like, it's not the documentation of like this is how we, you know, spin up a WordPress site, or this is how we do Google Analytics or this is how we do convert box. It's not, it's a doc. It's a documentation around the client records that's most important.
[00:14:41] Speaker B: Yeah, yeah. Because largely like when we acquire an agency, we, we really work very hard to make sure that. Because the worst thing that can happen when you acquire is that it's rocky for the customer because then the customer bails and the customer bails, both us and the, the seller, we all lose. Right? And ultimately the customer probably loses because we don't really know where they go. But we all know in this space there's, there's really good places and they're really bad. And so, you know, you never know where that client's going to end up going.
So in order to avoid that rockiness, we try to not disrupt their technology.
So a lot of people think, well, if I just have 5,000 SOPs put together, that makes my agency more valuable. But it really doesn't, because any agency that's going to come in and buy you already knows how to set up Google Analytics. They already know how to run a WooCommerce site. They know how to connect to an API. They know Zapier. So it's like, you know, your documentation of all that stuff.
I remember at one point thinking I got to have all this document. And after I started buying out other agencies, I went, this is a futile, like, do that for yourself. But don't, don't do that thinking that makes your company more valuable. Because to most places, that's just another nightmare that I've got to go dig through. You know what I mean?
[00:16:01] Speaker A: Correct. We have agencies ask us all the time. They come into agency mavericks and they're like, oh, we just want all the SOPs for running an agency. I'm like, no, you don't. Like, I can give you all the sops for running an agency, and I've just created three months of work for you. Yeah, right. Like, what you need is you need a system that allows you and your team to create all of your SOPs for running your agency. Sure. We can give you, we can give you starter packs for like installing Google Analytics or GA4 or Google tag Manager, whatever, but you're going to find your own way to do things. Right? Like you, you know, there's not, like, there's, there's nuances in. And your team are the ones that should be documenting those SOPs. You, as the business owner should be documenting, as you say, all of the client records. You know what, like their plug, who manages the plugin licenses, who manages the theme licenses, the tech stack, the server, all that kind of stuff. So, and let's talk about the business model. Like, what do you, what size agency are you looking for to acquire and what is the makeup of their revenue? What kind of services are they offering? Just kind of walk us through the typical Best case scenario.
[00:17:02] Speaker B: Yeah, for sure.
A lot of times. Let's see. I mean, we've done acquisitions with people that have had businesses with as small as 20 or 30 clients. So you don't have to be huge to, you know, to, to sell. I mean, because for us, it's just adding more volume to our pool, right?
So, you know, 20, 30 people's fine. The biggest one we did had about 110 clients in it. That was a pretty good size one for us. It was a. That was like the second or third one we did. It was a pretty big learning curve for me because it was like just at 15, 20 clients, it's easy to see everything at 100 or up. On my end, it got a little bit harder to like, kind of keep all the puzzle pieces from falling apart. You know what I mean? You know, tech stacks start to vary, and you got old sites and new sites and. But, you know, anything in that size, honestly, we'd consider something larger than that even.
But from a revenue standpoint, obviously, you know, we're looking for recurring revenue. I will tell you, there are very few places out there that are going to buy a company who, where 80 or 90% of their revenue comes from random client requests or project requests and things like that. Because it's like, it's almost impossible to scale that, right? Like those random bespoke projects. It's like, it's just too hard.
My partner, Aaron and I, we actually looked at a company that was doing, I think they were doing 2 million a year, and it was a pretty sizable tech agency. And when we got into it, what we realized was none of the business was recurring. They made $2 million a year, but basically every month they were having to resell these clients on additional, like, oh, we built this thing for you, now we want to build this thing for you. Well, that's a really hard thing because they don't know me and they don't know my business. So if I step in there and we start trying to sell them that well, they don't trust me yet. Just because I bought your company doesn't mean they trust me. So not only is it not going to. You see what I'm saying? Those, those get really, really tricky to, to buy out. So the more recurring revenue you have and the lower your churn rate, like where. Your churn rate being where you're losing clients every month, like, we want to keep that churn rate low and have as much of that revenue be in the recurring space, and we don't care Whether that's in building things or designing things or doing, you know, SEO or PPC or Met Ads or it, like any sort of marketing or any sort of digital work, we can handle that. It's about the way that the client is engaged, I think, is what we're really looking for.
[00:19:47] Speaker A: Got it. What, what, what. What's, you know, what's the level of risk if you're acquiring an agency and all of those clients dealing with Jimmy or Joan for the last, you know, 10 years or whatever?
What's the kind of. The risk profile there of you taking that agency over? I mean, I imagine, you know, are you having conversations like, is there a. Is there a period of time where the. Where the previous owner needs to stay on board and. And kind of introduce all those clients to you? I mean, it's. I imagine it's. It's kind of risky that those relationships are a very personal thing, especially with a small agency. And a lot of those clients might go, well, you know, we don't even know who you are, Adam, and we don't like you, and you come from Nashville and, you know, that's not part of our world, and we're out of here. They're going to go find somewhere else. Or is it the pain of disconnect, like, switching agencies is such a pain in the ass that they're just going to hang around?
[00:20:37] Speaker B: Yeah. So far, we've had, I think, about a 98% retention rate with these, which when I actually went back and measured, I'm like, that can't be right. We've only lost about 3 to 4 out of all the clients that we've acquired. And of those ones, I think almost all of them were like, the business owner just kind of threw up the flag and said, I just don't think this was the spark for me to kind of say, I don't really think I want to do this anymore. You know, so. And there's not. On our side, it's like, there's not much arguing. They're like, totally get that. You know, that's just the way it goes, the way that we've really worked to mitigate it. A lot of these agencies, we're just larger in size, typically, than they are and have more capabilities.
And so for a lot of these agency owners, when they sell off to us, what happens is they do stick around for about 30 days, and then we keep them in slack just in case something comes up that there might be a backstory that we don't know. A lot of clients will Try to pull the. Well, so and so used to do this, right? It's like, well, they used to do this for free. And I'm like, hey, so and so. No, we never did that. Okay. They're saying that it's, you know, so it's, we kind of, we try really hard to build that relationship with the agency owner because that's their baby, that's their legacy. We've had people retire out on this or, you know, just decide that they don't want to do the agency, they want to do a different business or pursue a different career or like one of them was. Wanted to stay home with, with kids and wife was going to go work and he wanted to just get out. And so we, we understand there's a legacy there. So our goal is to be as minimally disruptive as possible, but then build the relationship. And because of the structure of Mealtown Digital, the clients will receive emails from me and videos from me saying hello. But largely what I'm doing there is positioning my team because it is 99% likely that unless they're a six figure a year client, they'll never talk to me. Like, they're just, they, they'll, they won't ever directly communicate with me. So what I do is try to facilitate the connection to Teresa and Chris and the rest of our crew. And then those guys really come in and like, they book meetings with them and they, you know, want to understand your business. We're not selling you anything. There's no upsells. We're not like, oh, that, that other agency did a horrible website for you. We're going to redo it. We don't do any of that. Everything we do is to come in and kind of be supplementary to what the other agency did. And what we found is by approaching it that way, instead of it being transactional, it's relational. And then that client now feels like, oh, like my website's still working a month later. And I emailed their support and they answered me and I decided I wanted, you know, to do some SEO work and they took care of that for me. And, you know, it's, it's like a slow trust building because like I said, you just don't want to burn. You don't want those clients to feel like that there's something unstable.
The very first acquisition I did, the very first thing I did was migrate hosting. And while I was exceptionally good at that, there were some things that, you know, kind of cropped up during that process. And after that first time, I Went, that may be the stupidest thing I could do, right, Because I was creating waves by accident. Like something was different.
And they were able to go, well, whether it was or wasn't true, they're like, well, this thing used to work and now it doesn't. So now when we acquire, we don't change anything. So if the client's like, well, since you took over this, it's like, hey, we actually, nothing has changed, so we'll look at it for you, of course, but just know we're not changing things. And that was a, I think has gone a really long way to keeping all that smooth. So it is a little bit of a partnership between us and that other agency for like a short period. But then once the clients are comfortable, it's kind of like you just get to sail away into the sunset, you.
[00:24:43] Speaker A: Know, Just want to touch on a point you mentioned before. You said if they're a six figure a year client, that means if they're spending six figures a year with you, right? Not if they're generating six figures in revenue. Just want to clarify that. Do you eventually, like, once you, the client's been with you for six or 12 months, do you eventually then go, we're going to streamline hosting and bring everyone onto our server.
[00:25:01] Speaker B: And yeah, a lot of times, unless like, you know, we've had some where the setup that they had was pretty good, right? Like, I, I never used Cloudways before and one of the agencies we bought out had a big, you know, cloudways set up. They had like four or five boxes on there. And once we learned it, you know, our senior developer was kind of like, I don't hate this, right? He's like, I thought I was going to hate it. I don't hate it. I'm not really sure if we should move. And so at the 50 or 75 website, Mark, we really tried to keep it all in one spot, but as we've gotten up over 300 and some sites now, it, it started to feel like I had all my eggs in one basket. And so I kind of didn't mind the diversification of the technology, you know, because it's like if WP engine, you know, poops the bed, it's like, well, we maybe only have 50 sites there. We don't have 350 where everyone's out.
So.
But we do over time start, you know, connecting with them about their marketing. Like, do you need help with this? Like, you know, this is what we're seeing. Do you guys, you know, just ultimately we're always trying to let them know that we do all these services because a lot of agencies don't necessarily do all the things we do. And the clients maybe don't know that those things are even something they could have. Right. Some of them are like, oh, like I didn't even know that you could run ads on Facebook. You know, it's like, well, yeah, of course. Like, and then when they start realizing that there's just more capabilities, we do end up kind of upselling the client. But in a very. It's. It's only when we really feel like they need it or they've raised their hand because of some marketing or something and they've said, hey, like this looks interesting to me. We, it's really about, don't rock the boat.
[00:26:45] Speaker A: Yeah, I want to talk about, I want to talk about valuations in a minute and what people can expect and like, how that's calculated.
But before we do that, is there any agency or type of client base that, where you would just say, we're not going to touch that, like E commerce or memberships or anything where you're like, nah, that's not our bag.
[00:27:06] Speaker B: No, not really. I just got to go back to what I said earlier. Like, we probably would avoid agencies where like 90% of their work comes from project work.
You know, in those scenarios we've never, we've actually not done this. But one of the things Aaron and I have talked about is, you know, in those instances we've, we've had people that we've kind of turned down. But I think moving forward, we would potentially look at some situation where it's like, okay, we'll, we'll give you, you know, a cut or something of what they do for X amount of time. Right. Because it's still like they, those clients still have to go somewhere, but they just don't have the same value that they do if they're on a recurring service.
So we've kind of toyed around with that.
Up until now we've kind of avoided that. And I would say other things for us would be, you know, mostly we're looking U S based.
Although English speaking, we probably would look at it because we have staff kind of everywhere, but we probably wouldn't do any non English speaking. Like if, if your bulkier client pools, you know, in a different language. Yeah, we probably couldn't do it. Yeah, sure.
[00:28:16] Speaker A: And now obviously we can't talk about, you know, the details of the deals that you've done, but I just want to kind of Give people an understanding of, like, if you're running an agency and it's recurring revenue, what. How are these things valued? How do we kind of work out what the value of the business is? What are the. I guess, what are the factors that come into play?
[00:28:38] Speaker B: Yeah, a lot of it is, you know, number of clients, how long those clients have been, you know, with you. You know, are they new? Are they been there three years? They've been five years.
You know, what's the. What's the recurring revenue?
And then looking at any, like, explicit hard costs that that agency would have. That we wouldn't have. Right. Like, if everyone. If you've got some crazy plugin set that like no one else in the world uses, you know, we kind of evaluate that. That we've. We've seen a lot of those things, but, you know, kind of look at that stuff and try to. Yeah.
[00:29:14] Speaker A: You did what with icf?
[00:29:15] Speaker B: Yeah, we've seen some stuff where it's like, you go in there and you're like, that doesn't even look like WordPress. That's like, oh. Because they've basically, like, tried to white label WordPress and Elementor, which, by the way, don't do that. That's a really bad decision.
That will get you into all. We've seen people with, like, pirated, like, where they. They're like using elementor with two Rs at the end, right? Because it's not. It's like a pirated, like, elementor. And we're like, hey, guys, I probably can't. Probably shouldn't do that, you know. Yeah, yeah. Our lawyers look at everything now, by the way, because it's like, you know, there is always that liability of, like, what did they do? Right. Like, you know, we're kind of. And I'll. I will also earmark that. We actually do not buy the names. That is one thing that we don't do. We don't take on the llc. We basically just absorb it into Mule Town Digital. And the main reason is for liability because if you have done something naughty under your llc, that's going to stay with you. I don't want to take that with me.
So just know, like, a lot of times, really, we're trying to get to the client pool. It's ultimately what I want is I just want to be like, here's your group of clients. We're going to take those clients.
Maybe some staff. We. We've had instances where some staff kind of followed along.
Most of the time, those staff tend to roll out because it's just different. Right. It's like it's not what they were used to.
But yeah, those are kind of, I guess, the, the, the biggest things that we look for.
And I know you could probably talk to the EBITDA and you know how that stuff gets, gets calculated. That's actually more. Aaron, my partner, handles a lot of that in the valuation side because he bought and sold numerous companies in the past. So he's pretty quick at getting down to.
Ultimately, it boils down to what the thing's worth against what we can afford to pay based on what we think is going to happen. So we kind of have our own little internal formula. But I will say a lot of times, depending on how we structure, the agency owner oftentimes ends up. Now it's not permanent because right. At some point we run out. We've paid you what we're going to pay you. But a lot of times these agencies will actually, their expenses are gone. Right. So all of a sudden they're getting paid something on these clients, whatever it is, for X amount of time. And it's usually way more or at least equal, almost always more than what they normally are getting. Because like you said, after expenses, people are just really struggling to actually make money. So a lot of times when we do these, the agency owner is sitting really pretty for an extended period of time, which gives them time, you know, it gives them value for what the work that they've done.
It makes sure their clients take care of it. It allows them to transition out very gracefully into the next thing.
[00:32:09] Speaker A: Yeah. Figure out what they want to do next. I mean, the thing like, you know, globally. And you can look this up. Globally, agencies are typically valued at somewhere between three and six times ebitda. Right. Now, EBITDA is kind of a fancy word for net profit. So let's just break it down. If you're making, you know, 300 grand a year in revenue and it's costing you, you know, 100 grand in your team and software and stuff to deliver that, and then it's costing you another hundred grand to kind of run the business for a.
So you're making 100 grand net profit. Well, typically an agency is valued at three to six times that. Now the caveat is this. Under seven figures a year, there's no data around what an agency is worth. Right. So this is for agencies that are over seven figures a year. They're typically valued at between three and six times ebitda. Now again, the caveat is it depends on a couple of Things. One, how much of that revenue is recurring?
So the more recurring revenue, the more valuable. Two, how much of that recurring revenue is contracted, right? So if you've got people on recurring revenue, but they can cancel any month and there's no contract, well, then that's going to reduce the value to the acquirer, because now there's more risk. Three, how much of these relationships are based on the agency owner and the personal network of the agency owner? If they're all based on that, then that's also going to reduce the value because the new acquirer is taking on more risk, Right? So very quickly you can see that, you know, and I'm just saying this to manage people's expectations that if you're running a small agency, I mean, I've. Fuck me.
I had.
I got very deep into a conversation once with an agency who's in Mavericks Club, and they came to me and they said, look, we've got this opportunity to buy this other agency. And I said, great. And they said, we want to, you know, we want you to have a look at the. The books and tell us what you think it's worth. I said, great. So I signed an NDA.
This agency client of mine turns up with a P and L statement out of zero.
That was. It was just the actual P and L statement out of zero for the last 12 months, right? Or actually was the last three years. And I look at it, and the agency is doing about 600 grand in revenue, but only declaring about 150 net profit, right? And he wants a million dollars for it, right? I'm like. And well, hang on a second. Doing 150 grand net profit.
And that's. That's up and down. That's not every year. It's up and down, right? So it's not consistent. If it was consistent, right? If it was. If it was contracted recurring revenue, which, by the way, most of it wasn't. If it was contracted recurring revenue, and there were a couple of other team members that were involved in building the relationships with the clients, which there wasn't. There was one guy and he had a couple of, I think, couple of developers in the Philippines somewhere doing some work, right?
And it was consistently 150. I would have said to my client, well, you know, maybe I'd advise you to pay somewhere between 450 and 600 for it, right? Because I wanted a million dollars for it. And there were all these caveats. He was saying, well, it's because I pay my wife this much through the business, but she doesn't actually work in the business. I just do that to reduce tax. I'm like, okay, so here's what you need to do, right? There are, it's called cleaning the books, right? There are two sets of books that you show. One to the tax office to reduce your tax liability and one to an acquirer, right? Or an investor. So if you're. So what you do is if you, if you're actually not paying your wife, right, I'll pretend that you haven't said that and I won't dob you into the tax office because everyone does it. But if you're not actually paying your wife, then go and take that out of the P and L statement. It's called an add back. And then come back to me and show me how much net profit you're actually making and show me that it's consistent. Show me that the recurring revenue is contracted and show me as an acquirer that this recurring revenue is highly likely to continue once you leave the building.
Right? Because if you can't show me that, then the business is probably worth maybe your one, your annual revenue, right? Maybe your annual recurring contracted right now out of 600 grand. If 300 of that's project revenue, I'm not paying you for that, right? So, so you have to be, you can't. You have to be realistic about what the things actually worth, right? I know you've all read the books and listened to the podcast and watched the Netflix shows and like valuations.
Unless you are selling to a strategic. And I'll walk you through the. And by the way, if anyone's really serious about packaging their agency up to sell it, you should really get around the Built to Sell podcast with John Warrilow. It's a fantastic resource. Read the book, get around the podcast. There's three different types of acquirers. One is an owner operator, right? Which is kind of what you're doing. You're going to buy a business and operate it, right?
From a payout point of view, evaluation point of view, it's actually probably like a full transparency. It's probably the worst kind of acquirer to sell your business to, right? But the reality is most small agencies don't have an option. That's the only person you're going to sell an agency to because the other two are a private equity group. In other words, an investment group that manages money for wealthy individuals and they want to put that money somewhere and they don't want to put it into shares or foreign exchange or property because those markets are fucked. They want to put it into small business, right? Well, that's not going to happen if you're an agency doing less than a million dollars a year. Right. And the third type is a strategic acquirer, someone who can. And a buddy of mine here in Melbourne had a multiple 7 figure a year AdWords agency.
All he did was AdWords and he was acquired by a multiple 7 figure a year SEO agency. Right? Massive upside. It was a strategic acquisition because they came in, bought the agency, said goodbye to the owner, said, we don't need you anymore, we'll take all your stuff. Because what we're gonna do is we're just now gonna sell AdWords to all of our SEO clients and we're gonna sell SEO to all of your AdWords clients. Massive upside. So he did really well out of it because it's a strategic acquisition. Right.
Another example is if a big software company comes along and says, hey, we make software for the health industry and we want to buy a digital marketing agency that specializes in the health industry. Again, massive upside. So you'll get more if you sell to a strategic acquirer. They're the three typical types of acquisitions. And what we hear about in social media and on the podcast and in the news, we always hear about the strategic acquisition where someone sold their business for 10 times revenue. Right.
Well, if you're an agency under a million dollars, that ain't going to happen. So I'm just saying that to manage.
[00:38:32] Speaker B: Everyone'S expectations, it's like, I would say the easiest if you're like, trying to very rapidly not ask ChatGPT and not go through all the. Although it does actually does a pretty good job if you feed it at P and L, it actually does a pretty good job of kind of telling us what would make sense as far as an acquisition goes. But the easiest thing to do is look at your recurring revenue over a year. Like if you're. If you're under a million dollars in, in total, you know, annual revenue, that will give you.
It might be more than that, it might be less, but it gives you something to kind of go off of. And it's largely where we start looking at a company. So like Troy saying, you know, if. If you're doing 500,000 a year, but only 100,000 of that is recurring revenue, it is highly unlikely that I want to go up to that 500,000 mark because I'm just assuming a ton of risk at your benefit. And while I love all the people that we've acquired, I don't really want to risk it. I don't want to risk my. My livelihood on, you know, making a mistake like that. So, you know, because. Because you have to think of it from our side. We don't know your clients, and a lot of times we don't know you. Right. Like, we. Some of the ones we bought. I had a relationship with the agency owner previously, but some of them I have not. And, you know, lots of agencies operate very differently. People have different moral sets, different what they think is okay and not okay in the business. And it's. It's. It's a. It's risky, right? There's no clean acquisition that's just gonna have zero risk on either side. You're. You're entering into a risk together. So you gotta try to kind of be realistic about what, you know, be realistic about what the thing's actually worth. You know, we like to think it's worth so much more than what it actually is when someone comes down to picking it up.
[00:40:25] Speaker A: Yeah, totally. Now, by the way, if you're listening to this and you're like, holy hell, I just want to jump on a call with Adam Silverman and see if he'll buy my agency. We'll put a link in the show notes here, but the. You can go to muletowndigital.com sell-your hyphen agency. In fact, if you just Google Agency, Mavericks, Mule Town Digital, that'll come up.
Click on the page, go and watch the video that myself and Adam made and which is, you know, a summary of everything we've spoken about here. And then fill in the application form, get on a call with Adam and the team and see if them buying your agency makes sense, right? If you're just at the point where you're like, you know what? I. Cause his. I had this conversation with a client yesterday who's kind of at a fork in the road about their business model, right? And I said, listen, it's. For me, it's. And I'll fuck. I wish I knew this 15 years ago, right? I think this is one. This is what I'm gonna teach Oscar and Goldie. If they want to go into business and. And they get. And. And if they want to go into the service business, right? If you want to make physical product, a whole different ball game. But if you want to be in the service business, I mean, this applies to physical product as well. And if you. One example, go and check out what the guys at JHS Pedals are doing. Them. They make guitar pedals. And the owner of JHS Pedals has basically built a personal brand through YouTube and they're absolutely killing it.
And they build a tribe around their brand. Right, well, if you're in the services business, for me, the way to succeed in the service business, which is, you know, agency coaching or consulting, whatever professional services is to, is to become a market leader, right? So become a market leader. Where people say, our friend Simon Major, if anyone in Australia is a health practitioner and they need SEO, I say just go and talk to Simon at Practice Edge if they need. If you know, if there's other marketing services they need, I say go and talk to the guys at Heartbeat Digital in Melbourne. Here they serve the health allied health industry, right? That's all they do. So it's very easy for me to refer to them because as far as I'm concerned, they are the market leaders.
Now market leadership for me is a very simple formula. The first thing you have to do is make a. And this is directly, I'm telling this directly to the people listening to this podcast.
The first decision you need to make is this. Can you get out of bed every day for the next two years to serve your clients better than anyone else on the planet? Because if you're not prepared to do that, you should think about selling, right? Because that's what it's going to take in order for you to actually take your technician as a self employed freelancer thing and turn it into an actual business, is to get out of bed every day for two years and serve your clients better than anyone else. Like when the world went into Covid, you and I had a conversation about what the hell are we going to do now? What did you do? Picked up the phone and called everyone that you'd ever worked with or anyone that had ever expressed interest and just said, hey, business owner to business owner, how you guys doing? Things are a bit fucking weird at the moment. Are you guys okay? Right, that, as far as I'm concerned, is an example of getting out of bed every day, putting your own panic aside and just turning up and serving your clients. Now if you're not prepared to do that, get out. Right? If you are prepared to do that, then, then, then get on with producing content and putting a message out there to attract people and, you know, serve them better than everyone else. This is why I turn up every week and do the podcast and we make the YouTube videos and we put the content out. And I've been doing this in this market for. What year is it? 2025. Since about 2011. I've been serving freelancers and web design agencies. Right. So which is why we're still here. And a lot of our competitors have fallen over.
So my point is that if you're not prepared to do that for the next two years, then get on a call with Adam and offload your agency and let him and his team do it because they're geared up to do it.
[00:44:13] Speaker B: Yeah, I always feel like it's like you gotta take yourself serious enough to make that decision. You know, I think so many people jump into space and they just. I find that they just don't take themselves seriously. You know, it's like they. They're like. They're shy, they're scared. They're.
This. You know, this is not the kind of business is business. You know, it's very hard to do business if you have that kind of mentality. You know, you've gotta be a little more animalistic. And truthfully, I believe if you're gonna take yourself seriously and run an agency, go to Mavericks, go to Mavericks Club, join one of the other programs here, and take your. Invest in yourself. Because the reality is, if you don't, over time, your agency is going to be worth less and less and less, and you're going to end up just shutting the doors, and your clients are going to go into the wind. And all that work that you've done. To Troy's earlier point, you basically just created a job for yourself for two years, three years, five years, and it was probably a horrible job, and you probably hated your boss, which was you. And it's like, you just, you know, you just basically made this thing that. That just didn't work out right. So if you're going to go to all the trouble of building a business, it's like you want to get something out of it. So take yourself serious and learn how to do it the right way. You know, don't just sit there and flail and then be like, well, the economy was bad, or I couldn't find staff, so I closed down. I just. I hear a lot of that stuff, and I'm like, that's just. You're just lying to yourself, you know, 100%, man.
[00:45:45] Speaker A: It's just an excuse. There's always an excuse. And, you know, it's interesting because every time I've made a decision to invest in myself, and this isn't a pitch for Mavericks, like, whatever. I don't care either way. It's. It's you. Like, if you listen to this, it's your business, it's your decision it's not mine. I'm good either way. We would love to help you, and, you know, we do good work, but it's. It's fine.
Every time I've made that decision to make a big investment, I've made the decision that I'm going to see this through, to make sure we get that money back plus a dollar. Because then not only have we recouped our investment, but we've also got all this new knowledge and all these new assets in the business that will serve us for years to come. There is no way my business would be where it is now if I tried to figure it all out myself. Absolutely no way. And every successful entrepreneur I know has surrounded themselves with people who have already walked the path and can hold their hand and get them there. So. So there you go. Is there anything we've missed? Is there anything that we absolutely should have mentioned that we haven't?
[00:46:41] Speaker B: I don't think so. I just kind of. To finish up what you're saying. I think maybe the worst outcome that an agency can have is to get nothing for the effort, you know, like. And that. That's really why I started doing this. We started doing acquisitions because people came to us and said, hey, Adam, I'm. I'm struggling and I'm stuck, and I don't want to do this anymore. And, like, help me, right? We. One person, it was a death, and his wife came to me and said, I don't know what to do. Like, help. I gotta. I gotta take care of all these people. Help. Help me, right? So I didn't get into this to just be like, let me go buy up people because I'm some greedy, crazy guy. Like, that wasn't what it was about for me. It was about, you know, helping people kind of make that transition.
And I just hate seeing people going, well, I'm closing my agency down. I got, you know, 15, 20 clients, and I just told them, you know, piss off. You gotta find somewhere to go. Like, that's your. That's your work. And those people have trusted you, and to just, you know, toss them out and be like, I'm gonna take a job. You got two weeks, and here's your website files. Good luck. I just hate when people do that. So I'm like, don't do that. Like, get on the phone. Find somebody that'll take over those clients. Get paid a little something for the work that you've done. But I just hate when people throw them in the wind. And that's kind of why we started doing this. And then I figured out, wow, this actually works really well because we get these clients in and then they start asking for things like a new site, a new this, a new that. And so it worked out well for us. But, you know, I just kind of wanted to cap it off by saying, just don't, don't do that to people. You know, again, take yourself serious and respect those people enough to make sure that they get transitioned somewhere where they can be taken care of. I think that's really. You gotta.
My dad always tells me to end well, right? Always end well. Don't. Don't get to the end and slow down. Like, you know, finish the race the right way, you know?
[00:48:35] Speaker A: Yeah. 100. Love it. Love it. Well, Adam Silverman, Dude, I mean, far out, man. It was Feb, 2020 when you and I actually first met in San Diego and here we are, you know, five and a half years later. It's been an amazing journey and looking forward to hanging out again and all the best with the acquisitions and look forward to keeping in touch again. We'll put that link in the show notes. It's muetown digital.com sell your agency, go and check it out. Have a conversation with Adam. If you want to have a chat with us about growing your agency, then there's a link somewhere near this where you can book a call and chat with our team. Adam Silverman, thanks again for being on the agency hour.
[00:49:12] Speaker B: Thank you so much, Troy. I appreciate it, man.
[00:49:15] Speaker A: Thanks for listening. Listening to the agency, our podcast, and a massive thanks to my buddy Adam for joining us. And again, if you are looking to sell your agency and you know that you're just done and that you would prefer your clients to get into better hands, then go to the link near the show notes here. Muetown digital.com sell your agency and have a chat with Adam and the team. Okay, folks, remember to subscribe and please share this with anyone who you think may need to hear it. I'm Troy Dean and remember, it's scientifically possible to turn peanuts butter into diamonds.
