valuation of an advertising agency

How would you personally judge if an advertising agency is good?

I don't believe that Sales/Profit Multiple is a good measure, except you want to buy such a business.

Information about a good multiple might be available from Business Associations specifically to the Advertising Industry, which I believe normally measure and benchmark their member businesses.

However, even if you want to buy such a business, think about other measures as well. Such measures could be the Customer Benefit per Campaign (Additional Sales/Profits) or the Number of successful campaigns vs. unsuccessful campaigns, to just give you a few ideas.

BTW: I don't understand, why you need such information for a Business Plan, as when you start a business you won't have any Sales/Profits you could use a Multiplier on. If you do so, it's is just an assumption (don't overestimate it).

Hope this helps.

You are asking if you had an advertising agency how would it be valued. Because you are making an business plan for an ad agency. Got it!

An ad agency is a services business. The trickiest thing about them is they are usually valued by the partners. For example if I buy an ad agency and the partners leave it is usually worth nothing.

If you operate an ad agency that has retainers where you have 'guaranteed' money coming in each month then you might be able to have a better valuation. If you pretty much have to sell new projects (logos, branding, ad placement, etc.) each month then it would be harder to value it.

To make it easy you could value it at 1 year revenue.

Some cases that would be too high, some cases too low. But for that industry that is probably sufficient for your business plan.

If you have huge retainer contracts you might be able to get a 2 - 3 multiplier. Reason software as a service companies can be valued with good multiplies because there is guaranteed revenue each month.