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Valuation Multiples for Consulting Firms

    Valuation multiples for consulting firms vary based on the type of consulting provided. Examples include engineering consulting firms, management consulting firms, creative agency consulting firms, IT consulting firms, etc. 

    But generally, consulting firms follow a similar business model, which is revenue charged on a time & material basis, so the multiples wouldn’t vary too widely.  

    This article contains valuation multiples for firms that identify themselves as management consulting firms, because these large, global consulting firms have branches that include IT, creative agency, and other subject matter expertise. 

    So, analyzing these large management consulting firms is a good average gauge of a typical consulting firm’s valuation multiples. 

    Side note: If you are looking for valuation multiples for professional services firms that are not necessarily consulting firms, then read this other post I wrote. 

    I looked at a data set of 35 consulting companies with available data. They range in size, so I further analyzed the companies by subsets based on the number of employees. 

    The analysis summarizes the revenue multiples, EBITDA multiples, and the earnings multiples. It also considers the average gross margins and net income margins. 

    Here are the results of the analysis

    Valuation Multiples for Consulting Firms

    • We see that out of a data set of 35 companies (with a few removed in certain multiples or margins due to outliers), the average revenue multiple is 1.4x and the median revenue multiple is 1.2x. 
    • The average and median EBITDA multiples are similar which is around 13.8x. 
    • The average earnings multiple is 15.1x and the median earnings multiple is 18.7x. 
    • The average and median gross margins are 34%. 
    • The average net income margin is 5% and the median net income margin is 33%. 

    Average Valuation Multiples for Consulting Firms

    Let’s look closer at the multiples and key observations of the analysis:

    Valuation Multiples for Consulting Firms2

    Key Observations

    • Consulting firms are not valued higher for being larger – on average, consulting firms are valued in between 1.0x and 2.0x in terms of revenue multiples.
    • On average, consulting firms have a revenue multiple of just above 1x.
    • Consulting multiples have an average EBITDA multiple of just less than 14x.
    • Small consulting firms (less than 500 employees) are valued at much lower than larger firms with an average EBITDA multiple of about 4.0x.
    • Mid-size consulting firms are valued highest and the largest set of consulting firms are valued lower than the mid-size consulting firms.
    • Similar to EBITDA multiples, small consulting firms are valued much lower than larger consulting firms in terms of earnings multiples, with an average/median of about 4x.

    Average Margins for Consulting Firms

    I also pulled the data for gross margins and net profit margins for consulting firms. The following are key observations of the analysis:

    Valuation Multiples for Consulting Firms3

    Key Observations

    • The average and median gross margin for the total data set is 34%. 
    • The highest gross margin is for mid-sized companies with employee size between 10,000 – 30,000. 
    • The average and median net income margin is 5%.
    • The net income margin for small companies with less than 500 employees is negative, and the next size tier up have net income margin in the low ones. This observation can insinuate that consulting firms have high overhead and may lead to no or low profits when there isn’t economies of scale. But as the firm becomes a certain size, the economies of scale plateaus. 

    Download Data Set

    To download the full data set in this analysis, enter your email address below and the data set will be sent to your email directly. (This is to prevent malicious bots from continuously downloading the file.)

     

    Thanks for reading as always and leave a comment if you found it useful!

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