What Buyers Actually Discount (and Rarely Tell Founders)

Discounts aren’t punishment. They’re the price of uncertainty.

Founders often think buyers discount for one reason: they’re trying to get a bargain. Sometimes that’s true, but it’s not the main reason. Most discounts happen because the buyer is doing exactly what they’re supposed to do, which is pricing the gap between the story and the proof.

They won’t say that out loud because it’s awkward and it can sour the relationship early. So you get the polite version:

“We love the business. We just need more comfort.”

That sentence is never neutral. It usually means one of three things is about to happen. Either the price compresses, the structure gets heavier, or the process slows until their model feels safe.

Buyers don’t discount ambition. They discount what they can’t underwrite.

The rule you need to understand

When buyers see uncertainty, it tends to show up in one or more of these ways:

1. Price compresses
   The multiple is lower than you expected.
   
   
2. Protection increases
   Earn-outs, holdbacks, escrows, heavier warranties, more conditions.
   
   
3. Momentum slows
   More diligence, more “we just need a bit more”, and sometimes a late re trade.

Founders obsess over headline price. Buyers obsess over whether the risk story is clean. That gap is where discounts are born.

What buyers actually discount

Nearly every discount in an agency deal lands in one of five buckets. Not because buyers are predictable, but because agency risk is predictable.

1) Earnings quality

This is the big one.

An agency can look profitable and still feel untrustworthy, not because the numbers are wrong, but because they’re hard to explain quickly. When profit can’t be defended in plain English, buyers treat it as fragile, and they protect themselves accordingly.

The signs are usually boring, which is why founders miss them. Numbers don’t reconcile cleanly across reports. Margin moves month to month and the explanation is a meeting, not a page. Add backs sound reasonable but aren’t evidenced line by line. Cash conversion doesn’t match profit and working capital becomes a surprise.

The buyer isn’t thinking “gotcha”. They’re thinking: if I can’t trust the base, I can’t pay for the upside.

The fix here is also boring proof. You want one reconciled monthly pack, used internally, not produced for a buyer. You want revenue and margin by client, so quality is visible. And you want a simple one page margin explanation you can send without a call, because the fastest way to stop this bucket becoming price compression is to make the numbers legible.

A simple test: if a buyer asks “why did margin move?”, can you answer without booking a meeting. If you can’t, you don’t have an earnings problem. You have a proof problem, and buyers price proof problems.

2) Revenue durability

Buyers aren’t buying this year’s revenue. They’re buying next year’s likelihood, and their fear is simple: does this revenue wobble as soon as we own it.

Discounting shows up when durability is unclear. Concentration exists without a mitigation story. Contracts are missing, inconsistent, or too flexible. Renewals live on goodwill rather than terms. Key revenue is held by the founder personally. The pipeline looks “strong” but isn’t staged or evidenced. Pricing power is weak and scope creep is tolerated, so margin stays under pressure even when revenue grows.

When this bucket triggers, you feel it in structure. Earn outs show up. Retention conditions show up. Consent clauses become deal friction. Or the multiple drops because the buyer can’t underwrite retention cleanly.

The fix is mostly about making durability easy to trust. Put your top clients into one table with terms, renewal dates, margin, and who actually owns the relationship day to day, so a buyer isn’t forced to guess. Pair that with a concentration plan that’s practical and already in motion. Then get contracts consistent and tighten change control so you stop losing profit to “little extras”. Finally, make the pipeline feel real by defining stages and tracking conversion, so growth is evidenced, not wishful.

And remember the deeper point. Durability isn’t just paperwork. It’s ownership. If the founder still holds the relationships, the revenue is fragile until the agency can prove it’s transferable.

3) Founder dependence

Founders regularly underestimate how aggressively this gets priced, not because buyers dislike founders, but because buyers can’t own a dependency.

Discounting shows up when the founder closes most deals, retains the key clients, and becomes the escalation path for everything meaningful. It also shows up when quality control lives in one head and delivery leadership isn’t independent. Founders call it high standards. Buyers call it unownable.

When this is true, the deal often gets shaped around the founder rather than around the business. Earn outs get tied to founder involvement. Retention clauses get heavier. Sometimes the buyer simply waits, because they like the agency but they can’t buy the dependency.

The fix is not to prove you’re involved. It’s to prove you’re not essential.

Start with a dependency map that answers, honestly, what breaks if you step out for 30 days. Then put named relationship owners onto the top accounts so the client connection is held by the agency, not the founder. Document the operating processes that drive the work, and make sure they’re the way you actually run the business, not something you wrote for diligence. Then show depth in delivery, accounts, and growth, so it’s clear the agency has a bench, not just talent.

Here’s the blunt truth. If the buyer has to pay you to stay so the business holds together, they’re not buying an agency. They’re buying your continued presence and that changes everything about the deal.

4) Operational tightness

Buyers don’t require perfection. They require repeatability.

If the agency runs on effort and heroics, a buyer assumes it will break under new ownership, new growth, or new pressure. That assumption gets priced.

Discounting shows up when delivery is inconsistent across teams, utilisation and capacity are unmanaged, onboarding varies by account lead, QA is informal, and reporting is reactive rather than rhythmic. It’s not that the agency is “bad”. It’s that the system isn’t visible, so the buyer models margin leakage and delivery risk after completion.

The fix is usually less complicated than founders think. Put a weekly rhythm in place so you review numbers, pipeline, and risks with discipline, not when something breaks. Make utilisation and capacity visible, because unmanaged capacity is where margin leaks. Standardise onboarding, scope control, and QA checkpoints so delivery is consistent across teams. Then build the operating system so quality doesn’t rely on the founder being the final safety net.

Operational tightness isn’t bureaucracy. It’s making performance predictable, because predictable performance is what a buyer can underwrite.

5) Contract, legal, and IP tightness

This is where great agencies get ambushed.

Not because they’re sloppy, but because they’re busy, and legal tightness gets postponed until “later”. Later is when diligence arrives, and diligence has a cost.

Buyers discount when key contracts are missing or non standard, when assignment or change of control consent is unclear, when contractor IP ownership isn’t locked down, and when liability exposure is disproportionate to fees. Informal commitments that were manageable in founder land can become landmines in buyer land.

When this bucket triggers, you see holdbacks, escrows, warranty pressure, and deal friction that wastes months.

The fix is straightforward, but it needs doing early. Clean up the contract pack on your top accounts so everything is signed, consistent, and easy to find. Make the IP chain watertight for employees and contractors so ownership is never a debate. Standardise new work through an MSA and SOW structure so you stop reinventing terms deal by deal. And map any contracts that require client consent on a change of control so you don’t get surprised mid process.

Diligence doesn’t create legal problems. It reveals them. The earlier you reveal them to yourself, the cheaper they are to fix.

What buyers rarely tell founders, but always model internally

These are the quiet truths behind most discounts.

1. We’re not paying for potential we can’t underwrite.
   Founders sell upside. Buyers pay for the base. Upside becomes a bonus, not the price.
   
   
2. We’re buying the system, not the personality.
   A founder led brand isn’t a buyer grade operating model unless the system holds without the founder.
   
   
3. If the data room is messy, the business is messy.
   It may be unfair. It’s also how humans work. Organisation signals control, and control signals lower risk.
   
   
4. We discount what you haven’t made legible.
   If you can’t explain it cleanly, it becomes a risk premium. Legibility is leverage.

The re trade problem, and why it happens

Founders feel blindsided when buyers chip the deal late in diligence. Most re trades happen for one of two reasons.

Either the offer was built on assumptions, and diligence changed the assumptions.

Or the seller created drift. Slow answers. Inconsistent numbers. Missing evidence. Different stories depending on who speaks. The buyer loses confidence and protects themselves.

This is why the best defence against re trading isn’t negotiation. It’s running a buyer grade process: one numbers pack, one narrative, proof packaged in advance, and a fast cadence on questions.

Diligence doesn’t create problems. It exposes them. If you run the process slowly, you give uncertainty time to grow, and uncertainty always gets priced.

A simple test: where will buyers discount you today

Ask yourself five questions.

If a buyer asked, “why did margin move?”, could we answer on one page?

Could we show revenue and margin by client without debate?

Are the top contracts clean and accessible, including change of control consent?

Could the founder step out for 30 days without revenue panic?

Is the pipeline real, staged, and tracked?

Every “no” isn’t a reason to feel bad. It’s a discount you can remove before you ever enter a process.

The line to remember

Buyers don’t discount because they don’t like your agency. They discount because they can’t yet trust the claim you’re making.

So the best way to protect value isn’t to wait for a hot market. It’s to become buyer grade.

Truth. Transferability. Tightness.

Build those, and discounting becomes much harder to justify.

Take the Succeed Exit Readiness Assessment
If a buyer looked at your business tomorrow, where would risk turn into terms? The assessment shows the gaps across Truth, Transferability, and Tightness, and the next actions to remove discounting before you go to market.