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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on February 10, 2022
Investment range
$1,850 - $16,200
Revenue potential
$125,000 - $625,000 p.a.
Time to build
0 – 3 months
Profit potential
$110,000 - $190,000 p.a.
Industry trend
Growing
Commitment
Flexible
Here are the most important considerations when starting a digital marketing agency:
Starting a digital marketing agency has pros and cons to consider before deciding if it’s right for you.
The US is the largest digital advertising market in the world as it accounts for almost half of the $560 billion in digital ad spending worldwide in 2022.((https://www.statista.com/forecasts/459632/digital-advertising-revenue-countries-digital-market-outlook))
Trends in digital marketing include:
Challenges in digital marketing:
The biggest digital ad publishers in the US((https://www.statista.com/statistics/242549/digital-ad-market-share-of-major-ad-selling-companies-in-the-us-by-revenue/)) are:
Startup costs for a digital marketing agency range from $1,800 to $16,000. The low end assumes you’ll start your agency from home and that you’re already trained as a digital marketer and have a computer. You’ll just need a website and digital marketing software.
The high end includes the cost of a computer, rental of office space, and digital marketing training and certification. You can get your certification from the Digital Marketing Institute in about 6 weeks for around $1,600.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| Computer | $0 - $5,000 | $2,500 |
| Software | $300 - $500 | $400 |
| Training and certification | $0 - $1,600 | $800 |
| Office space rental deposit | $0 - $5,000 | $2,500 |
| Total | $1,850 - $16,200 | $9,025 |
Digital marketing agency rates range from $80 to $150 per hour. When you start, you should fall at the low end of the range until you build a reputation. Your ongoing expenses will be low, so your profit margin should be about 90%.
In your first year or two, you could work from home and work 30 hours a week at $80 per hour, bringing in about $125,000 in annual revenue. This would mean a tidy profit of more than $110,000, assuming that 90% margin. As your brand gains recognition and you begin to get referrals, you could reach 100 weekly hours and charge a higher rate of $120 per hour. At this stage, you’d rent a commercial office space and hire staff including other digital marketers, reducing your margin to around 30%. With annual revenue of nearly $625,000, you’d make an impressive $190,000.
There are a few barriers to entry for a digital marketing agency. Your biggest challenges will be:
Now that you know what’s involved in starting a digital marketing agency, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research digital marketing agencies in your field of expertise to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the market is missing a digital marketing agency focused on personalized marketing.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as digital marketing for retail companies.
This could jumpstart your word-of-mouth marketing and attract clients right away.
You should offer a full range of digital marketing services unless you want to specialize in one. Your services can include:
Digital marketing goes for $80 to $150 per hour. Until your business gains traction, you should stay at the lower end. Your ongoing expenses will be mainly for marketing yourself, so you should aim for a profit margin of about 90%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price point. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will be business owners, mainly small business owners. You can find them on LinkedIn or other business-related sites, but you should also call on them directly.
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Discover over 270 unique digital marketing agency name ideas here. If you want your business name to include specific keywords, you can also use our digital marketing agency name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool below. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to digital marketing agencies.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your digital marketing agency will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a digital marketing business. You might also try crowdfunding if you have an innovative concept. If at some point, your business has the potential to grow rapidly, you might be able to attract venture capital or angel investors.
Starting a digital marketing business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your digital marketing business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as mosaic, SEMRUSH, or productive, to manage your leads, data, projects, budgeting, estimates, and invoices.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your digital marketing meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your digital marketing business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a digital marketing business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been in digital marketing for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in digital marketing. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a digital marketing business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Digital marketers can provide a lot of value to businesses, which is why digital marketing is a booming industry and will continue to be for the foreseeable future. You can make a lot of money with a digital marketing agency, and you can start from home with a very small investment. With a lot of creativity and excellent networking skills, you can grow your digital marketing firm and make your mark in the industry.
You’ve got business knowledge in your corner now, so get your plan together and be on your way to launching your new digital marketing agency!
Digital marketing is an industry worth hundreds of billions of dollars, so it can be a very profitable business. Rates between $80 and $150 per hour can put a lot of cash in your pocket!
You’ll need to use your marketing skills to create awareness of your agency. You can also network on LinkedIn or call potential clients directly.
Yes, you can perform all your marketing activities from a home office. It’s a digital age, so you can work with clients anywhere in the world.
You can partner with other companies that serve businesses to get referrals. Examples include social media management companies or financial services companies.
There’s never a guarantee of success, but you can do things to give yourself a better chance of success. The real key is to do great work for your clients. Then you may get referrals from them to other clients.
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