Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why a Staffing Agency Sold at 35x EBITDA with Contractor Data
Transcript
- Lucas: So I was looking at the deal flow data for Q2 2026 — which just wrapped two weeks ago — and one number jumped out. A regional staffing agency in Phoenix sold for 35 times EBITDA. And it was a fairly small shop — about $2 million in revenue, maybe 30 contractors placed at any given time. Luna: Thirty-five times? That's territory we usually see for software companies with recurring revenue, not temp agencies. What did they have that made buyers pay that kind of multiple? Lucas: That's exactly the question. And the answer is data — specifically, contractor placement data. The owner had been tracking, for each contractor, how long they stayed on assignment, how many different clients they worked for, and what their gross margin per placement was. Over three years of that history. Luna: So the buyer wasn't just buying a list of clients and a few ongoing contracts. They were buying a predictive model of which placements stick and which ones churn. Lucas: Exactly. The broker on the deal told me most staffing agency owners walk into a sale with nothing more than client contracts and maybe a P&L. They don't have contractor-level data. This seller had a spreadsheet that showed, for example, that contractors placed in medical billing stayed an average of 14 months, while light industrial placements averaged just 4 months. And the gross margin on medical billing was 32 percent versus 18 percent for industrial. Luna: That's the kind of granularity that lets a buyer say 'I know exactly which verticals to double down on and which to cut.' It reduces risk. And risk reduction is what drives multiples up. Lucas: Right. The buyer — a mid-sized staffing roll-up based in Dallas — looked at that data and saw a clear path to growth. They could take the Phoenix agency's contractor database, cross-reference it with their own client needs in other markets, and place those same contractors elsewhere if a local assignment ended. That's the kind of synergy that justifies a premium. Luna: So what were the specific metrics the buyer cared about most? Was it tenure, fill rate, something else? Lucas: The broker listed three things. First, average contractor tenure by vertical — because longer tenure means lower re-placement costs and better client relationships. Second, fill rate — the percentage of open requests the agency could fill within 48 hours. That was running at 78 percent, which is decent for a small shop. Third, gross margin per placement — how much profit the agency made on each contractor after paying their wages and benefits. Luna: And what were those numbers? Give me something concrete. Lucas: Average contractor tenure across all verticals was 9 months. Fill rate was 78 percent. Gross margin per placement averaged 24 percent. But the key was that the owner could break it down by vertical, by client, even by individual contractor. That level of transparency is rare in a business this size. Luna: I've read that over 70 percent of staffing agency owners don't know their top three verticals by profitability. They just know total revenue and total payroll. So this owner was definitely ahead of the curve. Lucas: That stat is from a 2025 IBISWorld report on the staffing industry. And it's shocking. If you don't know which verticals are your profit engines, you can't optimize. And you certainly can't sell for a premium. The broker told me he's seen agencies with similar revenue sell for 5 to 7 times EBITDA simply because they had no data beyond client invoices. Luna: So what did this owner do differently? Was it a system? A software tool? Just obsessive record-keeping? Lucas: A bit of both. He used a basic CRM — nothing fancy, just Salesforce — and he trained his two recruiters to log every interaction with contractors and clients. Every placement, every extension, every termination. He ran a quarterly review where he looked at the data and made decisions. For example, he dropped two clients whose placements consistently churned within 6 weeks, even though they represented 15 percent of revenue. That decision alone improved his overall tenure by 2 months within a year. Luna: That takes guts. Dropping revenue to improve quality. But in the long run, it probably made the business more valuable. Lucas: Absolutely. And the buyer saw that willingness to optimize as a sign of strong management. Even though the owner was leaving after the sale — it was a full exit — they wanted to know the culture of data-driven decision-making was embedded in the team. Luna: So is this replicable? Could a $2 million staffing agency in, say, Cleveland or Tampa do the same thing? Or does it require a specific niche? Lucas: The broker thinks it's replicable, but it takes discipline. You need at least two years of clean data. You need to track contractors by vertical, by client, by tenure, and by margin. And you need to be willing to act on the data — to cut low-margin clients, to specialize in high-tenure verticals. The agency we're talking about had actually shifted from a generalist model to focusing on healthcare and administrative placements, which drove their multiples up. Luna: But isn't there a chicken and egg problem? If you start tracking data today, you won't have the history for two years. So owners who want to sell in the next 12 months are out of luck. Lucas: That's exactly right. And that's the painful truth. If you're planning an exit in 2027 or 2028, start building that data room now. The broker said the buyer actually paid a premium for the historical trend — they wanted to see three years of consistent improvement in tenure and fill rate. One year of data wouldn't have been enough. Luna: So the lesson is: treat your contractor data like a product. Package it, analyze it, and present it to buyers as evidence that your business is predictable. Lucas: Yes. And I think that's a broader lesson that applies beyond staffing. We've talked about route data for pool services, patient data for medical practices, contract data for distributors. In every case, the data that shows recurring behavior is what commands the premium. Luna: Speaking of which — if conversations like this have helped you think about your own business data differently, and if it was worth the price of a coffee to you, you can support the show at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure, but it helps us keep the episodes ad-free and focused on the numbers that matter. Lucas: Yeah, we appreciate that more than we can say. And it really does make a difference. So — back to the staffing agency. One more thing the broker mentioned that I found fascinating. Luna: What's that? Lucas: The buyer also valued the 'contractor lifetime value' data. They calculated that a contractor who stays 12 months generates about $4,800 in gross profit, while one who stays 3 months generates only $1,200. So by focusing on placing contractors in roles where they tend to stay longer, the agency can dramatically increase profitability without adding more contractors. Luna: That's the kind of metric that makes a buyer say 'I'm not just buying a business, I'm buying a machine that produces these contractor assets.' Lucas: Exactly. And the machine was well-documented. The owner had a simple dashboard that showed contractor lifetime value by vertical, by client, and by recruiter. That level of visibility is rare and valuable. Luna: So if I'm a staffing agency owner listening to this, what's my action item for this week? Lucas: Three things. One: if you're not already tracking contractor tenure by vertical, start today. Even a simple spreadsheet. Two: calculate your gross margin per placement for each of your top five clients. You might be surprised which ones are actually profitable. Three: look at your top 20 percent of contractors by tenure — what do they have in common? Are they in a specific industry, working with a specific client, or placed by a specific recruiter? That insight is gold. Luna: And if you've already got that data, you're probably already ahead of 70 percent of your peers. The question is whether you're using it to drive decisions or just collecting it. Lucas: Right. The Phoenix owner used it to drop bad clients, to train recruiters on which placements to prioritize, and to build a narrative for buyers. That's the difference between a 7x exit and a 35x exit. Luna: Alright, so that's the staffing agency playbook. Next episode, I want to dig into a completely different sector — maybe something in professional services. I've been hearing about law firms selling based on client retention data. Lucas: I've got a good one for you. A small estate planning firm in Florida that sold at 20x EBITDA based on client lifetime value and referral rates. We'll do that next week. Luna: Perfect. See you then.