A staffing agency billing twenty million dollars at a twelve percent gross margin is a smaller business than one billing eight million at a thirty-five percent margin, and buyers price them accordingly. Revenue in this sector is largely pass-through wages, so the meaningful figures are gross profit and the adjusted EBITDA that falls out of it after add-backs for owner compensation above market, family payroll and one-time costs. Owners who anchor on revenue are usually the ones most surprised by the offers they receive. Anchoring instead on gross margin percentage and its trend over several years gives you a far more accurate picture of where you will land.
After margin, the two questions that decide your multiple are how concentrated your revenue is and what kind of work it represents. An agency where one client is thirty percent of gross profit carries obvious risk, and buyers will either discount for it or structure part of the price to depend on that client staying. On mix, contract and temp-to-perm placements that recur are valued well above one-off permanent search fees, which have to be re-earned every year. Specialised niches, particularly in healthcare, professional and technical disciplines, generally carry both higher margins and higher multiples than general light-industrial work, because the supply of qualified candidates is a genuine barrier to entry.
Staffing is working-capital intensive: you pay workers weekly and collect from clients on much longer terms, so a meaningful amount of cash is permanently tied up in receivables. Buyers expect the business to be delivered with a normal level of working capital in it, and the definition of normal is negotiated. This is not a footnote, because the working capital adjustment can be a large number relative to the purchase price and can move the actual proceeds significantly. Clean, aged receivables with a low bad-debt history strengthen your position here. So does clarity on any factoring arrangements, which need to be understood and unwound in a way that does not surprise anyone late in the process.
Because most of the revenue is wages passed through to the workers you place, so it does not represent the earning power of the business. Gross profit is what the agency actually keeps for providing the service, and adjusted EBITDA is what remains after running costs. Two agencies with identical revenue can have very different gross margins and therefore very different values, which is why buyers and advisors work from margin rather than billings.
It is one of the largest single factors after margin. When one client represents a large share of gross profit, the buyer is exposed to losing a substantial part of the earnings they paid for, so they respond either by lowering the multiple or by making part of the price contingent on that client continuing after closing. Diversifying the book, and being able to show long tenure and multiple contacts within your largest accounts, materially improves both the price and the structure you are offered.