Agency founders love to say they’re running at 40% profit.

But what does that actually mean?

Is that SDE (Seller’s Discretionary Earnings)?
Or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)?

Because those numbers can be tens of percentage points apart, and if you’re planning to sell, raise capital, or benchmark your performance, it’s not just a technicality. It’s the key difference between how much money you make, and how much the business makes.

When You Don’t Know Which Number You’re Using

Founders often use “profit” loosely, which leads to misleading comparisons:

• You say you’re running at 40% profit, but that’s after paying yourself nothing

• Another founder claims 20%, but they’re paying themselves a full market salary

• Your books show 30% margins, but only because your $200K role is buried inside the “distributions” line

• A buyer offers 3x EBITDA, but you’ve been calculating your SDE

• An advisor tells you “your margins are too low”, but they’re normalizing for replacement cost

Without clarity on the metric, conversations get messy. And valuation expectations go sideways.

So What’s the Difference? And Why Does It Matter?

SDE reflects what the owner can take out of the business.
EBITDA reflects what the business earns after paying a fair salary for the owner’s role.

SDE is helpful if you want to know your personal earning potential from the agency.

EBITDA is what buyers, investors, and financial operators care about, because it shows what the business earns independently of you.

Most agencies don’t pay their founders a real salary. And that’s fine…until you’re trying to evaluate true profitability or prep for a sale.

Here’s a Simple Framework for Clarity

Whether you're planning to sell, raise, or just clean up your metrics, you need a consistent way to talk about profit. Start here:

1. Normalize your owner salary

If you're doing work that someone else would need to do (project management, client service, sales, leadership) you need to account for that. Don’t treat yourself like free labor. Assign a market-rate salary to your role, and run the numbers with that in place.

Even if you take distributions instead of salary, estimate what a full-time replacement would cost. That becomes your baseline for EBITDA.

2. Use EBITDA for apples-to-apples comparisons

Buyers will always adjust your profit numbers to reflect a normalized EBITDA. If your “40% profit margin” includes zero salary, expect it to be revised down…fast.

Calculating EBITDA properly builds trust and shows maturity. It also helps you compare your performance against other agencies more accurately.

3. Save SDE for lifestyle conversations

If you want to understand how much cash you can take home, SDE is useful. It’s your profit plus your salary, the total financial benefit of owning the agency.

Just be clear that this is a lifestyle number, not an operational one. Don’t confuse it with business profitability.

The Takeaway

SDE is about you.
EBITDA is about the business.

Both are valid. But only one is used when acquisition money is on the line.

So if you’re going to talk about profit, make sure you’re using the same language as the people you want to do business with.

It’s the difference between looking profitable, and actually being valuable.