What is a web development agency worth?

Two web development agencies with the same revenue can be worth very different amounts, and the gap need not be about design quality. A buyer may be pricing how much of that revenue will come back next year without the founder selling it again, how much of the portfolio depends on one platform, and how many client sites are quietly accumulating work that nobody has billed for. A founder may not see this from the inside, because a build fee and a monthly maintenance fee sit in the same revenue line. This page explains what buyers separate out, what they discount and how earnings get recast. Any multiple or range you hear for agencies is general industry discussion, not an appraisal of any business, and this page quotes none.

Recurring work is worth separating from project work

A buyer can treat retainer, hosting and maintenance income differently from project income, because project income has to be sold again each time, while maintenance income, if clients really keep paying it, arrives whether or not anyone is selling. An agency that has turned past builds into monthly arrangements may be priced differently from one that has only ever invoiced projects. A test a buyer can apply is how recurring the recurring revenue actually is: whether it sits under a signed agreement with a defined scope and notice period, or is simply an invoice that clients have not yet questioned. The shape of the client base matters too. Many small-business clients can spread the damage from any single departure, while a few large accounts can make the whole price depend on whether those relationships stay. The glossary entry on recurring revenue defines the term.

Platform expertise counts only while the market wants it

Expertise in a particular content management or e-commerce platform can add value when buyers can see demand for it and when more than the founder can do the work. An agency whose entire portfolio sits on one platform is exposed to that platform’s direction, including how it is priced, how merchants build on it and what eventually replaces it. A buyer can therefore look at the platform mix, at how current the installed versions are, and at whether the team holds partner standing that clients recognize. A tight specialty can be worth more to a buyer in the same niche and less to everyone else, which is one reason the same agency can draw very different offers.

What a buyer may discount

• Accounts in the founder’s name. Hosting, domain registrar, platform-partner and payment accounts registered to one person have to be moved before a buyer controls the client relationships, so a buyer may price both the risk and the effort.
• Client sites on unsupported platform versions or with unpatched plugins. These can be rework waiting to happen, and the clients may not have agreed to pay for it.
• Revenue that is almost all one-off builds. A strong year can hide that the pipeline has to be rebuilt every quarter.
• A founder who is the only seller and project lead. If clients stay because of one person, the buyer is paying for a relationship that may leave at closing; see key-person risk.
• Delivery that depends on freelancers with nothing in writing, which leads to the next point.

Ownership of what the agency built

A buyer may discount anything the agency cannot show it owns. Under the Copyright Act, the author of a work is generally its first owner. Where an employee made a work in the course of employment under a contract of service, the employer is first owner unless an agreement says otherwise, and an assignment of copyright is valid only if it is in writing and signed by the owner or the owner’s duly authorized agent. For an agency that uses freelance developers and designers, that means templates, boilerplate code and custom themes it treats as its own may still belong to the person who wrote them. Moral rights, which cannot be assigned but may be waived, are a separate question that a buyer can also raise. The page on web development agency due diligence covers how a buyer checks.

Privacy duties are a cost someone inherits

An agency that builds or hosts sites collecting visitor data carries compliance questions, and unanswered ones can come off the price. Where PIPEDA applies, an organization remains responsible for personal information it has transferred to a third party for processing, so what the agency has promised clients about handling data matters. For organizations covered by Quebec’s private-sector privacy law, the Commission d’accès à l’information describes duties that reach website work directly: publishing a privacy policy where personal information is collected by technological means, publishing the title and contact details of the person responsible for personal information, keeping a register of confidentiality incidents, and telling people in advance about any technology with functions that can identify, locate or profile them, which cannot be switched on by default. Whether a given duty falls on the agency or on its client depends on the facts and the contract, so a buyer can look at what the agency agreed to.

Recasting the earnings

Recast earnings can be priced in place of reported profit. For an agency, adjustments can include the founder’s pay compared with what a hired manager would cost, personal expenses run through the company, one-time items and the treatment of contractors. Contractors cut both ways. The Canada Revenue Agency says that all of the facts, including the actual terms and conditions of the work and not just the intention, determine whether a worker is an employee or self-employed, so a buyer may recast labour costs and look for exposure where long-term contractors work like staff. Hosting is another adjustment: if the agency resells third-party hosting at a margin, a buyer can ask whether that margin survives a change of ownership. Finally, buyer type can shape the answer. A larger digital agency buying a client book may value the retainers and the cross-selling; an individual buyer may value the cash flow left after paying someone to do the founder’s job.