4 landmarks for starting a marketing agency
NEW! Listen to the article
When starting an agency, the road ahead is bleak. You may not know how to find customers, how to retain them, or how to employ great talent. And you certainly don’t know how to overcome the challenges ahead that will threaten your growth and survival.
You don’t know what you don’t know, which makes it hard to figure out how to start a marketing agency.
When building a marketing or advertising agency, it can help to think in stages. Milestones and goals will guide you and keep you focused as you grow.
General guidelines for starting a marketing agency
There are four important eras in the life of a marketing agency, and different strategic priorities define them.
Not every agency will be able (or willing) to go through all of these phases, but using them as benchmarks can help you plan for today and tomorrow.
1. Getting Started
You are at the beginning of your entrepreneurial adventure and you are starting to sell the idea of your agency to others. At this point, your strategic priority should be to find clients and start offering your services to them, thus proving the value of your idea.
Benchmark: gross income. To prove that your agency business is viable and customers are responsive, you need to keep an eye on gross revenue. Just consider how willing people are to pay you for your service.
You may not encounter significant hurdles at the start-up stage because there are very few barriers to entry when starting a marketing agency. However, many businesses do not reach the survival stage because it requires increasing your income to create a thriving business.
Benchmark: Gross margin in dollars. Revenues can be a good sign, but they don’t tell you everything about the health of your business. Conversely, if you consistently make more money than you spend on cost of goods sold, your business is likely impacting your audience.
You need to increase your profitability to grow, which is hard to do if you’ve already put a lot of time, effort, and investment into starting your agency business. Fortunately, if you’re brave enough to take a calculated risk, an agency can grow in a number of ways, including increasing revenue or staffing, acquiring new clients, and adding new services.
Reference indicator: profitability. Keep track of the most profitable avenues. Double these strategies and keep growing. Look at overall profitability, but also customer and project specific profitability.
This phase could involve an exit from the market or an influential team member. Most agency owners don’t spend enough time planning their exit from the business. Due to this lack of planning, it is often the only option left when owners are considering leaving their business. To increase the value of your agency, run your business as if you were going to sell it.
Reference indicator: EBITDA (earnings before interest, taxes, depreciation and amortization). You want to increase your EBITDA before an exit occurs, as this is the metric that will inform your agency valuation.
How Agency Leaders Can Use Benchmark Metrics to Grow Wisely
Comparative analysis is beneficial not only for your financial success. It can also make your sales, marketing, and customer support more efficient. Establishing regular benchmarks in these areas will clarify what your business goals should be in each phase of your agency lifecycle.
Focusing on the previously cited benchmarks gives leaders feedback. And when you’re looking to build an agency from scratch, you need all the feedback you can get. Using benchmarks, you can envision growing your business as a series of experiments, iterating after you receive the results to create a more successful version of your organization.
Here are three additional considerations during your benchmark run.
1. Focus on where your leads are coming from
To calculate and increase your gross earnings (especially in the initial stage of starting an agency), start comparing where these leads are coming from. This information will help you focus your marketing efforts on the tactics that work.
Leads typically come from referrals from customers, strategic partners, thought leadership, or SEO. You’ll want to invest more of your resources into new business efforts that work for your agency.
2. Help your team members charge their way to success
Your team will drive your success, so set goals for billable employees to achieve their ambitions. Focus on gross margin and make sure your team members charge around three times their salary. For example, you should charge $150,000 per year for an employee who receives $50,000 in annual salary.
3. Don’t let profitability be accidental.
To reliably and measurably increase your profitability, you need to turn your business into a profit lab. Run experiments, track their performance, and iterate until you do more of what works.
Focus on salary costs versus gross profit; you want to keep your payroll costs below 50% of your gross margin dollars as a benchmark. This tight focus will allow you to maintain your profitability growth and ensure that your investment works for you.
* * *
When building a marketing agency from the ground up, befriending benchmarks might be the wisest decision you can make. Whether you’re in the start-up phase, just trying to survive, or trying to grow the value of your agency, metrics can become milestones.
More marketing agency resources
The Evolution of Marketing Agencies and Consulting Firms
Hire a marketing agency or hire in-house marketers: Which is right for you?
Why B2B Companies Use Marketing Agencies