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How to Start a Digital Marketing Agency: 5 Key Steps

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If you wanted to create a marketing agency 25+ years ago, the barrier to entry was colossal. With a primitive digital landscape, the overhead to create such an operation was daunting, and nearly impossible without initial investment. On top of the startup costs, you were limited to physical and traditional media and the headaches associated with all but fabricating something that resembled ROI for your clients. Being “in the red” for a very, very long time was inevitable.

Times have changed.

It’s not impossible to think that a skilled individual or small team could create a fully operational marketing agency from scratch within a few months (with a little help, of course).

Companies are spending more of their marketing budgets on digital advertising than ever before, and everyone wants a piece of the action. In this guide, I will walk you through the five steps you need to follow if you want to build an online marketing agency from the ground up (trust me, I’ve been there).

#1: Grab the Necessary Skills

If you’re a narcissistic Gen Z’er with visions of becoming Neil Patel right after you accept your diploma, chances are you’re going to fail miserably.

You can be as creative and intelligent as anyone in the game, but if you’re not prepared and experienced enough to deal with the many nuances of managing accounts and client relationships, you’ll be looking for another gig real quick. It may take years for some to build the skills necessary, it may take others less. Regardless, I believe you need to actually hold down a real job for some time before you venture out on your own.

Prior to mastering your digital marketing skills, you need to experience what it’s like to work where your clients may work. This will inevitably make you a more understanding and well-rounded professional. When your clients are stressed out and possibly projecting that on you, you aren’t going to take it personally.

#2: Be a Contractor Before Becoming a Founder

Taking the leap of working for yourself has a list of risks so long that it could make for separate blog post. What mitigates a lot of that risk is actually developing the foundation for a business before making the decision to do it full time. I suggest doing some contracting work on the side for a period while holding down a full-time job for a ton of reasons, top of which is… It allows you strike out on your own without assuming much risk

You get a taste of the entrepreneurial life when you begin to do side work. From invoicing to having to put aside extra cash for taxes, the small but very important elements of running your own business come into play.

You also have to manage your time wisely if you are going to still have a full-time job. This means working nights and weekends when you would rather be watching Netflix.

Building relationships as a contractor is also valuable in that it may bring you referrals down the line. If you are able to pay your bills as a contractor then making the transition into a one-person agency is going to be a lot easier than starting from scratch

#3: Create the Right Business Model

There are a lot of different ways to set up a digital marketing agency. The services you provide and how you bill for your work become a critical part of how efficiently your business is managed over time.

The most common ways to bill your clients are as follows:

Hourly

Many consultants will opt to bill their clients on an hourly basis. This is because a lot of their time is one-on-one with the clients, whether over the phone or directly in person. This billing model becomes muddy over longer and more complex service offerings.

It becomes difficult to say I spent “X” amount of hours on this per week so that’s how I will bill you. It also might make the client wary if they start to question how long certain actions take per week. Unless you are offering one-on-one consulting as a part of your service offering, I would stay away from the hourly billing model.

Flat Retainer

The flat retainer is the simplest of all the pricing models. You assess how much the work and time for a specific client is worth and you both agree on a flat monthly fee.

Aside from the simplicity, it allows you to reduce any friction when it comes time to send out the invoice. The client knows exactly how much it’s going to cost them and if you meet their expectations, they will have no problem paying it.

The downside to it is if you have a client who scales exponentially over time.

I suggest having an agreement in your contract that guarantees that price for a period of time (on a quarterly basis, perhaps); then you can renegotiate once that time is up. The biggest upside of a retainer-based model is that it allows you to forecast your earnings and hypothetically see how much you will earn if your current clients stay on for a full 12 months. This is essential to growing the business because you can set goals and prepare for set-backs.

This also plays a huge factor when hiring or outsourcing work becomes necessary (Step 5).

Percentage of Spend

This pricing model is very popular with agencies because it factors in the growth potential and scalability of the client. After agencies reach a certain maturity they are going to turn down clients with little or no pre-existing spend.

When you’re just starting out this may not be the best option as you will want to grow your network, but over time you will realize that having larger clients is far more beneficial to you for a number of reasons. The downside is if you decide to conduct business fully on a percentage of spend model because there are many internal factors within businesses that are going to dictate budget. Some of these factors are within your control (results) but many others are not (internal decisions, seasonality, other costs). You don’t want to get into a situation where your client is spending a very small amount per month and you are only getting 10% of that with the expectation of being on calls and putting the time into it.

My suggestion is to start out with a flat retainer fee as mentioned above and then, as your agency grows, implement a percentage of spend model on top of the retainer. This makes it clear to the client that if they want to scale and spend more, it’s going to require more work on your end to make it happen.

Commission-based

This is one that is often used by agencies in an attempt to gain a competitive advantage over others.

Essentially, they only get paid when the client makes money off of a sale.

This sounds enticing early on because you want to build trust with a client that you are doing everything in your power to help them be successful. Folks who have failed experiences with agencies often bring up the fact that they were paying all kind of money only to have no results or ROI. A gun-for-hire approach like this can appear truly tantalizing for a client who’s been burned before.

The downside to this model is that unless you have great insight into the operations end of the client’s business, it’s going to make billing them extremely difficult.

#4: Define Your Niche

When you’re starting out it’s easy to be seduced by the prospect of working with any business.

The thought of having to turn down anyone can cause anyone a fair amount of cognitive dissonance when their livelihood is on the line. With that being said, there are thousands of digital marketing agencies and consultants out there. Some of them specialize, but many of them don’t.

Aside from the added value of being specialized within an industry or client type, there are countless advantages to focusing your services towards a clearly defined niche. Here are a few of the most notable:

It makes onboarding easier

When you take on anyone as a client there are so many variables that you need to become aware of before deciding whether it’s a good decision to do business with them or not. When your ideal customer is clearly defined, this process becomes streamlined because you know what types of questions and information you need to attain from them. You also have perspective on how these businesses run internally as well as how much you would charge them on average.

It strengthens your skillset exponentially

If you have become skilled in digital marketing you can essentially run ads for most businesses. However, you need to learn the target market and how to formulate effective messaging. This can take a lot of time when the business is unfamiliar or abstract to what you are used to working with, which inevitably causes issues early on if things aren’t going so well.

If your ideal client is already defined, you are going to build a plethora of experience working with that type of client. This builds the muscle memory and intuition necessary to know what decisions to make and when to make them. You can work more efficiently because you’ve seen the problems before and you know how to handle them. It also makes you adept at recognizing clients you don’t want to do business with.

It gives you a competitive advantage

As I’ve mentioned before, there are so many people out there slingin’ ads and takin’ names.

The internet has allowed for the hackiest of hacks to experience success. Due to the fact that there are so many low-quality agencies out there, it provides the client with far more peace of mind when your business caters to those who are just like them. Being the “insert niche here” Agency gives you the social proof and expertise to confidently speak to the needs of these individuals their organizations. It gives you an added layer of trust and relatability that is so often lost in this industry.

#5: Decide How You Want to Scale

When you tell people that you’re going to run your own agency or consultancy, it carves into their mind that you are going to rent out an office space and hire a bunch of employees. More often than not, that is the worst decision you can make. If you’re like 99% of the population, chances are you have bills that need to be paid. If you want to get started and grow, you are going to have to make sure you can personally survive first.

When building a successful agency, it’s key to be highly skilled at what the agency does first. Managing the accounts yourself for a period of time allows you to not only refine these skills but it makes finding talented help a lot easier because you understand the skills and knowledge necessary for the job.

You also have to understand what the cost of that help means to you financially. What’s your client churn rate? Average customer lifetime value? How do you acquire new clients? Hiring and training a new employee is going to throw in an additional layer of complexity to all of that.

Convincing someone to come work for you is another matter altogether. Employees are employees because they want security. So unless you are at the point where you can offer them benefits and pay them well, they aren’t going to be interested in taking on the gig. The cost-effective antidote for this issue is simple: Find contractors.

There are so many talented people out there who are willing and able to help you out on a contractual basis. You don’t have provide these people with benefits, and they are an easy write-off on your taxes. Being able to delegate monotonous or time-consuming tasks to a trusted contractor is a huge load off of your shoulders when you’re focused on taking on business. This method allows you to scale to a point where having full-time employees makes more sense. The contractors may decide to join you full time if things go well and they have already proven their competence to you.

Make a Decision

If you’re reading this post, you have probably already ventured out on your own or you’re thinking about it. My overarching advice is to make a decision and stick to it.

Managing your own business has many ups and downs to it and you’ll have to be able to weather the storm to enjoy the benefits. It’s a dramatic life event and you have to treat it as such. If you feel early on that you aren’t cut out for it, then don’t drag yourself along for any longer than you have to. If you make a decision but don’t believe in it, you’re going to fail. You have to commit. Once you do that you may discover how extremely fulfilling running your own digital marketing agency.

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