When starting an agency, the road ahead is dark. You might 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 your survival.
You don't know what you don't know—making it difficult to understand how to start a marketing agency.
When building a marketing or advertising agency, it can help to think in stages. Milestones and targets will guide the way and allow you to maintain focus as you grow.
General Benchmarks for Starting a Marketing Agency
There are four significant eras in the life span of a marketing agency, and different strategic priorities define them.
Not all agencies will be able (or inclined) to progress through all these phases, but using them as benchmarks can help you plan for today and tomorrow.
You're at the outset of your entrepreneurial journey, and you're beginning to sell the idea of your agency to others. At this point, your strategic priority should be to find customers and start offering your services to them, thus proving the value of your idea.
Benchmark metric: Gross revenue. To prove that your agency business is viable and that customers are receptive, you need to keep your eye on gross revenue. Simply consider the measure of how willing people are to pay you for your service.
You might not encounter any significant hurdles at the startup stage because there are very few barriers to entry when starting an marketing agency. Many firms don't make it to the survival stage, however, because that requires increasing your earnings to build a thriving business.
Benchmark metric: Gross margin dollars. Revenue can be a good sign, but it doesn't tell you the full story about the health of your business. Conversely, if you are consistently bringing more money in than you're spending on cost of goods sold, your business is likely making an impact on your audience.
You need to increase your profitability to grow, which is hard to do if you've already spent a lot of time, effort, and investment starting up your agency business. Luckily, if you're brave enough to take a calculated risk, there are many ways an agency can grow, including increasing revenue or headcount, acquiring new customers, and adding new services.
Benchmark metric: Profitability. Keep track of which avenues are the most profitable. Double-down on those strategies and keep growing. Look at overall profitability, but also client- and project-specific profitability.
This phase could involve an exit from the marketplace or of an influential team member. Most agency owners don't spend enough time planning for their exit from the business. Because of that lack of planning, it's often the only option remaining when owners think about transitioning from their business. To increase your agency valuation, run your business as if you are going to sell it.
Benchmark metric: EBITDA (earnings before interest, taxes, depreciation, and amortization). You want to increase your EBITDA before an exit occurs because that's the metric that will inform the valuation of your agency.
How Agency Leaders Can Use Benchmark Metrics to Grow Wisely
Benchmarking is beneficial not just for your financial success. It can also make your sales, marketing, and customer support more effective. Regular benchmark-setting in those arenas will clarify what your business goals need to be in each phase of your agency's life cycle.
Focusing on the previously cited benchmarks gives leaders feedback. And when you're figuring out how to build an agency from scratch, you need all the feedback you can get. Using benchmark-related metrics, you can consider growing your business as a series of experiments, iterating after you receive results to create a more successful version of your organization.
Here are three additional considerations when moving through your benchmark journey.
1. Focus on where your leads originate
To calculate and grow your gross revenue (especially at the initial stage of starting an agency), start benchmarking the origin of those leads. That insight will help you focus your marketing efforts on working tactics.
Leads usually come from client referrals, strategic partners, thought leadership, or SEO. You'll want to invest more of your resources in the new business efforts that are working for your agency.
2. Help your team members bill their way to success
Your team will ensure your success, so set goals for billable employees to achieve their ambitions. Focus on gross margin dollars and ensure your team members are billing around three times their salary. For instance, you should be billing out $150,000 annually for an employee getting paid $50,000 in annual salary.
3. Don't let profitability be accidental.
To grow your profitability reliably and measurably, you need to turn your business into a bit of a profit lab. Conduct experiments, track their performance, and iterate until you're doing more of what works.
Focus on payroll costs relative to 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 keep profitability growing and ensure that your investment is working for you.
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When building a marketing agency from the ground up, befriending benchmarks could be the wisest move you make. Whether you're in the startup phase, just trying to survive, or you're trying to grow your agency's worth, metrics can become milestones.
More Resources on Marketing Agencies
The Evolution of Marketing Agencies and Consultancies
Hire a Marketing Agency or Hire In-House Marketers: Which Is Right for You?
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