Are you tired of the 9-5 grind and want to be your own boss? Perhaps you have a passion for digital marketing and want to turn your skills into a profitable business. Every day, businesses across the globe turn to digital marketing agencies to help them navigate the complex landscape of online advertising and customer engagement. With the rise of online businesses and the need for digital marketing services, there has never been a better time to start your own agency.
To succeed in this competitive landscape, you need more than just digital marketing skills. In this guide, we will provide you with an overview of the business, the steps to get started, and answers to common questions.
A digital marketing agency is a business that helps other companies strategize and execute online marketing campaigns to increase brand awareness, drive website traffic, and generate leads or sales. A digital marketing agency specializes in targeted marketing and advertising of products and services on electronic devices, such as phones, computers, tablets, laptops, etc. Digital marketing efforts can include video, imagery, content creation, social media posts, SEO services, display ads, building landing pages, email marketing, social media ads, and pay-per-click (PPC) advertising. By comparison, traditional marketing refers to print campaigns such as magazine ads, billboards, direct mail, and TV ads.
To make money, your agency can structure its revenue model in several ways. One common approach is offering services on a retainer basis, where clients pay a monthly fee to access your agency’s expertise and ongoing support. You can also earn revenue through project-based contracts, where clients hire your agency for specific campaigns or initiatives, or through performance-based models, where your compensation is tied to the results achieved.
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The digital marketing industry in the United States is enormous and has been experiencing rapid growth. Between 2018 and 2023, the industry grew by over 25% each year, reaching annual revenues of $60 billion nationwide.1
The industry is expected to grow over the next five years. Two key factors driving this growth are 1) the continued shift of marketing budgets away from traditional media and towards digital platforms and 2) increased internet, smartphone, and social media usage by consumers. This presents a major opportunity for digital marketing agencies to capitalize on the high and growing demand from businesses looking for support with their online marketing efforts.
Starting a digital marketing agency now positions you to take advantage of this growth trend, offering a service that’s in high demand and will continue to be for the foreseeable future.
Steps To Start A Digital Marketing Agency
Step 1: Write a Business Plan
When starting a new digital marketing agency, jumping right into finding clients and working on campaigns can be tempting. However, taking the time to write a business plan first can have numerous benefits and help pave the way for success.
One benefit of the business plan is the market research section. Your business plan has you look closely at who you’re selling to, what your competitors are doing, and what’s happening in the digital marketing world. This helps you make smarter choices about what services to offer and can set your agency apart from the competition.
Calculating startup costs (office space, equipment, software, hiring, etc.) and creating financial projections are important sections of the plan where you assess the financial feasibility of starting your own digital marketing agency. You need to know how much money you need to start and operate your agency until you start generating revenue.
Last, when seeking funding, a business plan is often required. Investors want to see a strategic plan for growth before committing. Your business plan presents your financial goals, marketing strategies, and revenue models, demonstrating your business’s viability.
Related: How to write a business plan
Step 2: Secure Funding
While the cost to launch a digital marketing agency can be very low, funding will be needed to cover any equipment, office space, and working capital to get the business off the ground. Here are a few resources to consider when looking for funding.
First, tally your available personal savings to invest towards startup costs. While most entrepreneurs cannot fully self-fund a business, putting your own “skin in the game” signals commitment to lenders. If personal funds fall short, outside funding will be necessary. Popular sources of funding in this industry include:
Lenders: Banks and other lending institutions are a common source of funding. They often require borrowers to show up with a business plan and invest at least 15% of their personal funds towards the total cost of the project, in addition to a good credit score and sufficient collateral. The bank may utilize a Small Business Administration (SBA) loan guarantee if it requires additional security.
Business credit cards: Business credit cards can provide quick access to funds, which can be particularly useful in managing cash flow or addressing unexpected expenses. However, they often come with high interest rates if not paid back promptly.
Friends and family: Another source of funding can be friends and family. It’s important to put any financial agreements in writing to avoid misunderstandings or strains on personal relationships.
Microloans: In cases where traditional lending options are unavailable or for smaller funding needs, microloans can be an alternative. These loans are provided by local economic development organizations and may also offer business training alongside the funding.
Step 3: Register the Business
The next step when starting your digital marketing agency is making sure it’s legally established. The specific requirements needed vary depending on your location, but here is a general overview.
- Sole proprietorship: This structure represents the simplest form of a business entity, with a single owner who handles all aspects of the business. The advantage of a sole proprietorship is its ease of startup and lowest cost. The disadvantage is that the owner is personally liable for business debts and lawsuits.
- General partnership: In a general partnership, two or more people share ownership and control of a business. Like a sole proprietorship, it’s relatively easy to establish, but all owners are personally liable.
- Corporation: A corporation is a separate legal entity owned by shareholders, separating its financial and legal responsibilities from its owners. A corporation provides liability protection but is also more expensive and complex.
- Limited Liability Company (LLC): An LLC provides the legal protections of a corporation without the corporation’s complex tax and legal provisions. It’s a more flexible option suitable for smaller businesses.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!
Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!
Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain business licenses and permits: Depending on your location, there will likely be a variety of general business registrations needed before opening. These could include a business license, seller’s permit, and Employer Identification Number (EIN).
Step 4: Set Up Operations
With funding secured and your business legally registered, it’s time to focus on the operational setup of your digital marketing agency. In this phase, you’ll make decisions that lay the groundwork for the day-to-day running of your agency.
First, decide where your agency will call home. You have two main options: working from a home office or renting office space. As a digital marketing agency, the crux of your work is online, which gives you the flexibility to work from just about anywhere. Some prefer to work from a home office, eliminating travel time and providing significant cost savings. On the other hand, renting an office space can offer a more professional impression to potential clients and may encourage a more focused work environment. The choice ultimately boils down to your budget, work style, and the image you want your agency to project.
The next component to consider is creating a pricing structure for your services. Consider factors such as market rates, your overhead costs, and the value you provide when setting your price structure.
Another aspect to cover is building your team, and here, you can decide whether to bring employees on board or work with independent contractors (or both). An employee offers stability and accountability but also adds a burden on your payroll and management. On the other hand, independent contractors are easier, forming agreements on a project-by-project basis, and it saves you the expenses of benefits, hardware, and other costs.
Step 5: Prepare to Launch!
Starting a digital marketing agency is not an easy task, and to wrap up the core steps we’ve gone through so far, there are a few more things to consider. These tasks will vary depending on your specific needs, but here are some of the common ones:
Business insurance: Common types of insurance options for digital marketing agencies include professional liability insurance and data breach insurance. Professional liability insurance protects you from the financial consequences of any mistakes you might make in your professional services. Meanwhile, Data breach insurance protects your business from the consequences of any data breaches.
Setting up bookkeeping: Using software or hiring a bookkeeper can help you manage daily transactions, taxes, and financial statements.
Opening a business bank account: Separating your personal finances from your business finances makes it easier to manage income and expenses, and it also makes filing taxes less complicated.
Creating a marketing strategy: In addition to maintaining a professional website and engaging on social media platforms, think about using traditional media channels like TV, radio, or newspapers to promote your business. Networking with other local businesses and the Chamber of Commerce can also help you engage with the business community.
Preparing for the grand opening: Plan a grand opening event to mark the launch of your agency. This could be a physical event, an online launch, or a special promotional offer. It’s an opportunity to create buzz and showcase your services to potential clients.
Common Questions When Starting A Digital Marketing Agency
How much does it cost to start a digital marketing agency?
Starting a digital marketing agency costs approximately $3,000 to $40,000, depending on a number of choices. Let’s break down the costs:
Location: If you choose to operate from a commercial office, you’ll need to consider the cost of initial deposits, renovations, and furnishing. This can range from $1,000 to $25,000. If you’re working from home, this cost can be significantly reduced.
Equipment: You’ll need computers, software, and other office equipment. The cost can range from $1,000 to $10,000, depending on the quality and quantity of equipment.
Website and branding: Establishing a professional web presence is crucial. This includes the cost of website design, hosting, and branding materials like logos. This can cost around $500 to $2,000.
Marketing: Initial marketing costs can include advertising, SEO, and social media marketing to attract your first clients. This can cost around $500 to $1,000
Insurance: Business insurance protects your agency from potential liabilities. The initial cost for a basic policy can range from $500 to $3,000.
Miscellaneous expenses: Other costs, such as business cards, office supplies, and other costs, can add another $500 or more.
How profitable is a digital marketing agency?
The profitability of digital marketing agencies will vary depending on the business model, digital marketing services offered, and pricing structure.
Revenue projections: Assuming the agency secures and retains an average of 10 clients per month, and charges an average fee of $1,500 per client, the monthly revenue amounts to $15,000.
– Office rent is assumed to be $1,500 per month.
– Salaries for a small freelance team amount to about $5,000 per month.
– Monthly costs for software and tools are estimated at $1,000.
– Marketing and advertising expenses are also projected at $1,000 per month.
– Miscellaneous expenses could be around $500 per month.
This totals monthly expenses to $9,000.
Profit estimation: Subtracting the total expenses ($9,000) from the total revenue ($15,000), the estimated monthly profit for a digital marketing agency is about $6,000.
What is the NAICS code for a digital marketing agency?
The NAICS code for a digital marketing agency is 541810, which is categorized under Advertising Agencies.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?