How do I read a media agency’s revenue when client ad spend runs through its books?

Two media agencies can post the same revenue and be very different businesses. In one, most of the revenue is money clients hand over to buy ads, and the agency keeps a small slice. In the other, the revenue is mostly fees for planning and managing campaigns. A listing rarely tells you which. Before you compare agencies, get the numbers into the same shape.

Gross billings versus what the agency keeps

Billings are everything invoiced to clients, including media bought on their behalf. Net income is what remains after the agency pays the platforms and publishers. Ask the seller for both figures side by side, month by month. If the statements show only one, ask how the agency records ad spend and whether your accountant can restate it. Compare agencies on what they keep, not on what passes through.

How the agency earns its keep

Find out whether income is a flat fee, a share of spend, a mark-up on media, or a mix. A share of spend rises and falls with client budgets, so a client cutting back cuts the agency’s income at once. Ask which clients are on which arrangement and whether the terms are in writing. Reading the contracts is a job for your lawyer.

What fronting client spend does to cash

Some agencies pay the platforms first and collect from clients later. That ties up working capital and puts the agency at risk if a client is slow or does not pay. Ask how long clients take to pay, whether bad debts have occurred, and how the agency would cope if its largest client paid late. Ask your lender what it will want to see.

It also helps to ask who holds each ad account, since who owns the ad accounts affects what you actually acquire.