How to Value a Staffing Company

staffing agency owner shaking hands with someone else

Last Updated February 29, 2024

Running a staffing agency can be a great business. After all, the U.S. staffing industry is projected to hit $207.2 billion in 2024, showing just how much potential there is.

However, like many other business owners, you may be wondering how to sell your staffing services. Investors and other staffing agencies may be interested in buying your staffing firm, but their level of interest – and the amount they’ll be willing to pay – can vary significantly based on your staffing company valuation.

By understanding how to value a staffing company, you can better position yourself to sell your staffing agency.

How Staffing Firm Valuations Are Determined

In the most basic sense, staffing firm valuations are based on how desirable a staffing agency is to potential investors. Potential buyers will primarily look at the agency’s EBITDA (earnings before interest, taxes, depreciation, and amortization).

The EBITDA helps show the operational efficiency of your staffing agency, specifically whether you are able to generate enough cash and operating income to service debt, pay taxes, and turn a profit.

Other Factors That Can Determine a Staffing Company’s Worth

While the EBITDA is an important factor in selling staffing services, there are several additional factors that can come into play that are specific to the staffing industry.

Some key factors that can influence your staffing agency’s worth include your location, the number (and type) of industries served, what training and professional development resources you offer your workers, and how reliant your business is upon you as the owner. Your bill rate, the average time it takes to fill positions, and your company’s expectations for growth factor in as well.

Understanding the Market Valuation Approach

The market valuation approach plays a significant role in determining the value of your staffing agency. As Investopedia explains, this system is “a method of determining the value of an asset based on the selling price of similar assets.”

In this case, the asset is the staffing agency. Investors will evaluate the value of your staffing agency based on the factors mentioned previously, while also looking at other recent transactions involving similar staffing agencies. This information is essential for them to figure out a general “fair market value” range for your agency.

Related: Payroll Funding for Staffing Companies

Understanding Staffing Company Valuation Multiples

Staffing company valuation multiples come into play in relation to your EBITDA. Buyers generally view EBITDA as one of the most important and efficient ways to measure your staffing agency’s profitability, regardless of variables like different tax obligations based on your geographic location.

Investors and buyers will use the EBITDA as a baseline for determining what the multiple should be for the staffing firm’s value. This multiple will vary based on how desirable the investor thinks your staffing agency is, as well as the overall market valuation.

So, while a staffing agency with relatively low desirability might be offered a multiple that is double its EBITDA, a more lucrative and attractive agency could be offered a valuation multiple that is up to 10 times its EBITDA.

How to Value a Staffing Agency

With all that in mind, if you’re wondering how to sell your staffing agency, these are the steps you should take to get ready. Going through these steps yourself will help you prepare and organize all necessary financial documents for potential investors, who will go through similar steps to determine the estimated price they’re willing to offer.

1. Calculate the Staffing Agency’s EBITDA

The EBITDA is the most commonly used measure of your financial performance – so you should start by calculating it yourself. There are two formulas that investors might use to calculate your staffing agency’s EBITDA. The first, which is generally considered to be more detailed, is:

Net income + Interest + Taxes + Depreciation + Amortization = EBITDA

The simpler method for calculating EBITDA is:

Operating Income/Profit + Depreciation + Amortization = EBITDA

2. Consider Adjusted EBITDA

After the initial EBITDA calculation, you can make certain adjustments to remove one-time or non-recurring items. By eliminating irregular gains or losses from investor calculations, you can increase the valuation of your staffing agency. Essentially, you add back the losses from these irregular expenses to increase your agency’s valuation.

Common examples of EBITDA adjustments include:

  • Litigation expenses
  • Goodwill impairments
  • Asset write-downs
  • Unrealized gains
  • One-time losses
  • Stock-based compensation

3. Use the Market Valuation Approach and Your Valuation Multiple to Determine the Cost

Investors use the market valuation approach to compare your staffing agency to similar recent sales, and then combine that information with their own assessment of your agency’s EBITDA and overall desirability. This information will be used to determine the valuation multiple for the sale price for your agency. Your knowledge of market valuation and EBITDA can help you negotiate a higher multiple for your sale.

The formula looks like this:

Estimated Sale Price = Valuation Multiple x EBITDA

4. Consult with Advisors and Investors

Before attempting to sell your staffing agency, consult with advisors and investors. Legal and accounting advisors will help you ensure that financial statements and other important aspects of the business are in order so that you can facilitate a successful sale.

You may also wish to consult with other investors to establish a baseline value for your business based on their market valuation and assessment of your agency. This can help you identify areas for improvement to make your agency more attractive when you go to sell.

What Factors Increase or Decrease the Value Of a Staffing Company?

While your EBITDA and the market valuation approach are important factors in determining the value of a staffing company, other factors specific to your business and its operations will directly influence its perceived value and the multiple that investors are willing to offer.

Factors that Increase Your Staffing Company’s Value Factors that Decrease Your Staffing Company’s Value
Technical/specialized industry segment General market
High revenue and EBITDA growth Low revenue and EBITDA growth
Long-term contracts Short-term contracts
Diverse client base Revenue concentrated in a few customers
Strong management and staff Operations overly reliant on the current owner
Specialty capabilities

What Makes Your Staffing Company More Valuable?

Staffing agencies that target a specialized or high-value industry (such as IT, healthcare engineering, or biotech) tend to be viewed as more valuable than generalist staffing firms. This is because such firms tend to experience stronger revenue and EBITDA growth due to the high demand for staffing support in these fields.

The makeup of your staffing agency’s client base will also play a role. A diverse client base with a large number of long-term contracts signifies reduced risk for potential investors. Even if you were to lose one client, it wouldn’t have a catastrophic impact on your finances.

Finally, strong general operating procedures will make your company more valuable. If you have good management and well-trained staff already in place, this will make the transition easier for your buyer after you exit. Any specialty capabilities that exist among your team to help differentiate your services from other agencies will also be a plus.

These positives can significantly increase your multiple, resulting in a much higher sale price for your agency.

What Makes Your Staffing Company Less Valuable?

On the other hand, generalist staffing agencies with a lower growth rate and EBITDA will be much less valuable to potential buyers. These issues are further compounded when your agency’s work is primarily made up of short-term contracts, which indicates a lack of stability for your long-term financial outlook.

Even if you do have long-term clients, your value could take a hit if too much of your revenue is concentrated in too few customers. If one of those customers were to drop your agency, the revenue hit would be much more severe than if you had a diverse client base.

Finally, if too much of the agency’s operations are tied to you as the owner, the transition to new ownership could prove difficult. If your departure would significantly disrupt day-to-day operations, your agency becomes much less attractive.

An agency with some of these negatives could still sell, though likely at a much lower multiple than a more attractive competitor. However, too many of these negative factors could keep you from being able to sell your staffing agency.

Staffing Company Valuation FAQs

How long does it take to sell a staffing company?

The amount of time it takes to sell your staffing agency can vary based on its annual profit and whether the sale is conducted by a small business broker or through a mergers and acquisitions-style auction. Generally speaking, however, most staffing companies will take 8-12 months to sell.

How much do staffing companies usually sell for?

Most staffing agencies sell for a rate that is a 3.5-5.5 times multiple of annual earnings, based on their adjusted EBITDA. The exact multiple will vary based on factors that influence the staffing agency’s perceived value and attractiveness, like its profit margin and contract lengths.

What is the standard staffing company valuation multiple?

The standard staffing company valuation multiple is 3.5-5.5 times the adjusted EBITDA, though it could be as low as twice the EBITDA or as high as 10 times the EBITDA.

What is a good profit margin for a staffing agency?

Most staffing agencies maintain a net profit margin of 3-10%. The cost of services, labor and facilities expenses, and other operating expenses all play a role in determining the staffing agency’s profit margin.