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How to Start a Digital Marketing Agency

How to Start a Digital Marketing Agency

Looking back at the 80s, the term digital marketing didn’t even exist – let alone an education pathway that would have equipped you with the skills needed to become a digital marketer.

Fast forward to the present, and according to Statista, digital advertising has grown to become one of the most important forms of advertising 

Suppose you have a background in digital marketing, advertising, and communications and are looking for ways to become your own boss. In that case, this is certainly an exciting industry to be part of. 

Business Description

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. 

Industry Summary

97% of Americans now own a mobile device, spending 65% of their digital media time on it. Businesses and organizations in the US spent $153 on digital ads alone.

Unsurprisingly, digital marketing is one of the fastest-growing and changing industries. According to IBISWorld, the digital marketing annualized industry growth in 2017 – 2022 was 17.4% in the US. It also notes a low barrier to entry in terms of capital. 

This is, however, a highly competitive industry, so a solid business plan, including detailed competitor analysis, will be vital on your journey to business ownership. It’s worth noting that digital marketing and advertising lends itself to freelance work.

Industry Trends

The access and use of the internet continue to increase globally. As a result, the expectations of a business or organization to have an online presence and provide access to all its services and products digitally are ever-increasing. Especially for GenZ, a business may as well not exist if it can’t be found via a search engine. 

According to the latest projections, digital advertising revenue will surpass $700 billion by 2025 globally.

All these statistics back up a continued forecast growth. However, this is a fast and everchanging industry, so staying on top of trends and understanding consumer trends is vital for your agency to stand out of the crowd and hit the target market successfully.

Target Market

Your target audience is any organization or business that is looking to outsource its digital marketing effort or which may need assistance with a particular marketing campaign. Large companies and organizations often look after their online presence in-house. 

By comparison, small and medium-sized businesses are more likely to need support with their online communications and marketing and outsource this portion of their operations.  

Whether you want to specialize in marketing for a particular sector will crystallize through your market and competitor analysis. For example, marketing and advertising for NGOs and potentially significant fundraising efforts may differ quite drastically from online marketing for an educational institution, a greengrocer, or a restaurant. 

Checklist for Starting a Digital Marketing Agency

If you’re thinking about starting your own digital marketing agency, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.

Step 1: Write a Business Plan

When starting a new digital marketing agency, it can be tempting to jump right into finding clients and working on campaigns. However, taking the time to define your niche, outline your ideas, goals, and timelines in a business plan can have numerous benefits.

It not only helps to clarify your unique selling point and target market but also helps to define short and long-term objectives. A business plan also serves as a valuable reference for making important decisions, determining appropriate pricing structures, and evaluating the potential profits of your business.

Additionally, if you plan on seeking funding from investors or lenders, a comprehensive business plan is a necessity. can make all the difference in securing the necessary resources for success. Ultimately, a well-crafted business plan is an essential tool for ensuring the success of your digital marketing agency.

Related: How to write a business plan

Step 2: Name the Business

Choosing a name for your business can be challenging, but there are a few important things to keep in mind as you make your decision.

First, consider the mission and values of your business. Does your name reflect those principles? Next, think about how your business name will sound to potential clients. Is it easy to spell and remember? Finally, make sure that the website domain for your desired business name is available. It’s often helpful to come up with a list of several options and then gather feedback from colleagues and friends before making a final decision.

Related: Tips on naming a business

Step 3: Form a Business Entity

A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a digital marketing agency, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
 
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible for repaying them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment, though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

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!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 4: Select Your Location

In the age of online communication, many digital agencies can operate entirely remotely. But if you want to establish a physical presence for your business, it’s important to pick a location that meets your needs and appeals to potential clients.

For home-based agencies, a quiet residential area with good internet access might be ideal. If your agency offers services such as video production or photography, having quick access to outdoor spaces could also be advantageous. On the other hand, a physical location in a busy commercial district could give your business more visibility and provide opportunities for networking with other local businesses.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

Starting a digital marketing agency requires more than just creative skills and knowledge of the industry; it also requires following all applicable laws and regulations. The specific licenses needed vary depending on your location, but there are a few common requirements to keep in mind.

First, you’ll likely need a local business license to operate legally as an agency, even as a home-based business. If you sell any physical promotional products, a sales tax license and an Employer Identification Number (EIN) would be needed if you hire employees.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

If you’re looking to start a digital marketing agency, funding may be needed. y be a great option to help fund your business. A key advantage of starting a digital marketing agency is low startup costs, as many services can be provided entirely online and remotely, but if funding is needed, a small business loan may be needed from your local bank or credit union. Banks will typically require the owner to invest 15% – 25% of personal funds into the project.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Plan in Place

This step should be pretty easy for digital marketing agencies, but we’ll cover it anyway.

Standing out among the competition and attracting new clients is a challenge for every new business. In addition to building a strong online presence, which includes maintaining a professional website and actively engaging on social media platforms, don’t forget the pull of traditional media, such as TV, radio, or newspapers.

Another effective approach is networking with other local businesses and the Chamber of Commerce and offering your services as a valuable partnership opportunity.

Word of mouth referrals from satisfied clients can also go a long way in creating trust and credibility for potential customers. Building a portfolio of work done and testimonials will help build word of mouth.

Ultimately, the key to success in marketing your agency is to showcase your expertise by consistently producing successful campaigns for your current clients. When potential customers see the results you have achieved, they will be more likely to trust in your abilities and hire you for their own digital marketing needs.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.

Step 9: Get Business Insurance

When starting a digital marketing agency, it’s important not to overlook the importance of business insurance.

Most businesses will want to have general liability insurance in case of accidents or injury on the premises. Another important type of insurance for a digital marketing agency is professional liability, also known as errors and omissions insurance, which protects against claims of negligence, mistakes, or failures to perform services. In addition, if your agency offers web design services, you may want to consider cyber liability insurance to cover any potential data breaches or hacking incidents.

While having the right insurance may not be the most exciting aspect of starting a new business, it is crucial for protecting the owners and company in the long run.

Related: Types of insurance your business may need

Step 10: Hire Employees

A digital marketing agency typically needs a diverse team of professionals in order to effectively serve its clients.

Depending on the offerings of your business, this may include individuals with backgrounds in graphic design, web development, and copywriting. Today it’s easy to build a freelance remote team to have all of the skillsets that you need, but be sure to have a solid vetting process in place to make sure the new hires are going to deliver for your clients.

If a local team is needed, not only should they have the skills, but they should also be trainable and fit within the team.

Related: Hiring your first employee

Step 11: Set up an Accounting System

When it comes to managing finances, any business needs to have reliable accounting software in order to keep track of income and expenses.

For a digital marketing agency, in particular, there are some essential features to look for in an accounting program, such as the ability to send invoices, track clients who haven’t paid, and stay on top of bills.

Additionally, many agencies work with clients on retainer contracts or have multiple ongoing projects at once, so having the ability to manage and track project budgets can also be helpful.

Ultimately, the specific features and programs that a digital marketing agency chooses may vary based on their individual needs, but finding a robust and reliable accounting software is crucial for the overall success of the business.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a digital marketing business?

Unless you are opening a physical location or have full-time employees, a digital marketing business is not a capital-intensive business.

Your principal investment will be a powerful computer that can handle large amounts of data, possibly a second screen, and various relevant programs and apps that are often a monthly subscription, further keeping startup costs low. In addition to graphic design software, common types of programs for a digital marketing agency include lead generation software to prospect for new clients, customer relationship management software (CRM) to manage inquiries and stay in contact with leads, and marketing reporting software so you can keep clients up-to-date on projects.

If starting from home, you can start for under $1,000, while a physical location and full staff could run $100,000 or more.

How profitable is a digital marketing agency?

The profitability of digital marketing agencies will vary on the business model, digital marketing services offered, and pricing structure. Common ways to sell projects include; hourly billing, flat monthly fee retainer, or fixed fee by the project.

Researching the hourly rates of marketing professionals on the platforms mentioned above is a good way to gauge what you can charge for your services and then work out your potential income. Add filters such as location and years of experience to narrow down your search.  Going with an hourly rate is not usually recommended as it is more difficult to track, but most companies charge from $30 – $140 per hour, depending on experience and the difficulty of the work being done.

If you have several years of experience in the field, qualifications, and an extensive portfolio to underpin your charges, your income may be comparable to a senior digital marketing manager. And that annual salary (based on full-time work) can be anything between $92,000 (ZipRecruiter) and $133,000 (Glassdoor). 

Are there grants to start a digital marketing agency?

It’s extremely rare to find a grant to start a digital marketing agency. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.

What skills are needed to run a digital marketing agency?

Expertise in digital marketing and communications. In addition to solid digital marketing skills, we highly recommend a degree or certification in digital marketing or communications. Basic design skills using apps such as Canva, Photoshop, InDesign, Illustrator, and Inkscape to create visual content are essential; understanding SEO, data analysis, and CRM (customer relationship management) skills are equally important. And, of course, you should have excellent communication and wordsmithing skills to create digital and social media content for popular platforms like Instagram, LinkedIn, TikTok, Facebook, Snapchat, etc.

A qualification will let your customers know they are in good hands and can rely on your expertise in this field.  There are also a variety of paid and free certifications available if you’d like to specialize in a particular area.

Staying on top of trends. This might not sound like a skill, but it is crucial knowledge. This sector is incredibly fast-moving. New apps, platforms, and programs are constantly coming to market, consumer behavior shifts, and expectations towards availability – and quality – of online content marketing is ever increasing. 

To succeed in this industry, you’ll need to keep your finger on the pulse, stay connected with your peers, be aware of trends and innovations and check out what your competition is doing. 

Relevant industry organizations:
guides.loc.gov/marketing-industry/associations
ama.org/
dmaglobal.com/

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?

Final Thoughts

Digital marketing and advertising is an exciting and fast-moving industry to be part of.  Your expertise, creativity, and your communication skills will be in demand across all sectors, subjects, and services. Starting your own business allows you to take on as much or as little work as you want and build up your portfolio, client base, and reputation. 

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