The digital marketing industry is expected to grow 13.1% in value between 2024 and 2032. As more businesses shift their marketing budgets online, the demand for digital marketing services continues to grow. This presents a major opportunity for aspiring entrepreneurs looking to capitalize on this growth by starting their digital marketing agency.

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A digital marketing agency helps businesses promote their products or services through online channels. This can include services like search engine optimization, pay-per-click advertising, social media marketing, content marketing, email marketing, and more. With the right combination of skills and determination, practically anyone can start their own digital marketing agency.

This guide will walk you through how to start a digital marketing agency. Topics include market research, forming a legal business entity, registering an EIN, obtaining business insurance, customer service, accounting procedures, and more.

1. Conduct Digital Marketing Agency Market Research

Thorough market research is a critical first step when starting a successful digital marketing agency. It offers insight into your target market, trends in digital marketing business services, local market saturation, and other details important to starting your digital marketing agency.

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• The most sought-after digital marketing capabilities among small businesses are social media marketing, content marketing, SEO, and pay-per-click/PPC.
• Typical digital marketing agency clients include SMBs, funded startups, mid-market brands, and enterprise brands, so understand these target customer personas.
• Assessing the competitive landscape is critical as well when starting any business.
• Research should be conducted on other agencies’ services, pricing models, clients, specialties, and marketing to analyze the competition space.
• Some top global digital marketing agencies include Wpromote, WebFX, TwentyThree, Straight North, and BlueFocus.
• Understanding common fee structures will also position you against other players, common digital marketing agency pricing models include monthly retainers, project/campaign fees, and commissions on ad spend managed.
• In addition to understanding market demand and competitive dynamics, an aspiring digital marketing agency needs to realistically assess its capabilities.
• At minimum 5 years in digital marketing, specializations might include PPC, SEO, social media marketing, web analytics, email marketing, etc.
• Identify any experience gaps to fill via hiring or partnerships early on.
• The available capital to start an agency is typically $10k-25k to cover incorporation, legal, branding, website, software, talent acquisition, co-working space, or office lease for the first 12 months.
• To pursue enterprise or global brand clients from the outset, significantly higher capital is required.
• While remote work enables serving clients anywhere, locating near urban innovation hubs can provide startup incentives/support programs and a strong talent pool to recruit from.

Conducting in-depth market research removes assumptions by grounding your business plan in real-world data and trends. Your digital marketing company will grow faster when you have all the facts about the digital marketing landscape.

2. Analyze the Competition

When launching a business based on digital marketing skills, it is critical to analyze your competition to effectively differentiate and position your agency in the marketplace. Thankfully, the digital landscape leaves behind trails of competitive intelligence to leverage.

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Start by identifying competitors based on services offered, ideal client profile, geographic markets served, and agency size. Search engines, review platforms, and social media make it easy to uncover agencies servicing similar customers to the ones you plan to target.

Evaluate the digital presence of 5-10 competitors identified as top threats based on the closest alignment to your future positioning. Analyze factors like their website design and messaging, thought leadership content and SEO strategy, and social media engagement levels.

Incorporate offline intelligence gathering by signing up for competitor email lists and monitoring their webinars to gain insight into lead gen and nurturing tactics. Attend industry events and ask their clients pointed questions to expose unmet needs.

Ongoing competitor analysis should focus both on current market leaders as well as emerging players. Cloud-based tools like SimilarWeb, BuzzSumo, and Ahrefs make it easy to automate the monitoring of important digital signals across search, social, content marketing, advertising, and web performance.

3. Costs to Start a Digital Marketing Agency Business

To make your digital marketing agency a profitable business, you must first invest. Building a successful business model requires startup and ongoing expenses. From marketing for potential clients to leveraging the best social media platforms, here are the main costs you’ll encounter.

Start-Up Costs

The typical start-up costs to get an agency off the ground range from $10,000-$30,000:

• Business Entity Formation – $800-1,500 covers incorporating as an LLC or S-Corp, drafting partnership agreements for co-founders, establishing business banking, tax/employer ID, etc. Legal fees apply if more complex corporate structures are required.
• Branding & Messaging – $3,000-$5,000 to hire a brand strategist and graphic designer to name your agency, craft positioning statements, logo design, style guides, etc.
• Website Development – $5,000-15,000 for a professionally designed website built specifically to nurture and convert your ideal clientele. More advanced sites with lead gen forms, marketing automation, etc can run $20-30k+.
• Office Equipment – $3,000 per employee covers a laptop, monitors/desktop setup, software subscriptions, phone, and shared printers/scanners.
• Office Space – For home-based agencies dedicate 500+ sq ft for team members once staff grows beyond the sole founder. Coworking space typically runs $300-$800/month per seat. Small commercial office spaces in urban areas average $2,000-$4,000 for 800-1200 sq ft units.
• Talent Acquisition – Factor $3-5k upfront for an experienced recruiter to help screen/interview agency talent specializing in key services like SEO, PPC, and analytics.
• Insurance – General liability ($1-2k/yr) protects against bodily injury, property damage, and personal injury. Errors & omissions policy ($2-4k/yr) covers negligent acts. Office contents insurance is also advised.
• Professional Services – Lawyers and accountants charge $200-500 per hour for specialized legal/tax support to establish compliant operations.

Ongoing Costs

Plan for $8,500 per month in baseline operating costs, scaling up incrementally with each additional hire:

• Staff Payroll – Starting at $60k salary for the founder (take low pay in early days), plan $60-90k for senior hires like Creative/Strategy Directors, and $35-60k for mid-level talent like PPC/SEO managers, writers, and designers. Include 20% overhead for employer payroll taxes and benefits stipend.
• Software Subscriptions – $500/mo per user covers marketing automation, SEO tools, collaboration software, project management, content creation, etc. Enterprise platforms for agencies average $2-5k+/mo.
• Continuing Education – $2,000 per senior staff member allocated towards annual conference tickets, online courses, and certifications to maintain competitive expertise.
• Marketing & Sales – 10-20% of revenue should fuel lead generation efforts through paid/organic search, content marketing, email nurturing campaigns, and sales enablement technology.
• Professional Fees – Expect another $5k-$10k/yr for CPAs and legal counsel unless significant tax, compliance, or contracting needs arise.

For bootstrapped agencies operating lean, plan for at least $20k in operating capital the first year while generating revenue. Some agencies pursue $50k-$250k+ in Seed capital or SBA loans to scale faster to profitability. Keep operating expenses aligned closely to the revenue booked.

4. Form a Legal Business Entity

When starting a digital marketing agency, one of the first major decisions is choosing your legal business structure. The four primary options each have their pros, cons, and legal implications in areas like ownership flexibility, liability protection, tax treatment, and administrative requirements.

Sole Proprietorship

A sole proprietorship is the simplest and most common entity for solopreneurs, with no formal company registration needed beyond requisite licenses. However, the founder assumes unlimited personal liability for debts and legal claims, exposing personal assets like savings and property at risk. This model also limits the agency’s credibility with larger clients.

Partnership

A partnership enables two or more founders to combine expertise under a shared business name, requiring some legal paperwork around profit-sharing terms. However, similar to sole proprietors, general partners remain personally liable for partnership liabilities, also complicating decision-making and exposing assets. This model works best for small agencies more focused on creative autonomy than growth.

Limited Liability Company (LLC)

For digital marketing agencies seeking liability protection plus tax efficiencies as income grows, forming an LLC provides the best of both worlds. As the name suggests, member liability is limited to their investment as “pass-through taxation” eliminates corporate income taxes. Startup costs range from $500 – $2,000+ depending on the state registered in.

Corporation

Establishing a corporation requires more upfront legal legwork and ongoing maintenance with stricter compliance requirements, but offers the highest level of personal asset protection from debts and lawsuits. Ownership via stock shares enables recruiting investors and employee talent through attractive equity-based incentive programs. However, corporate income tax rates are higher than pass-through entities.

5. Register Your Business For Taxes

An Employer Identification Number (EIN) serves as a business’s tax ID number for tax purposes related to hiring employees. The IRS requires all businesses operating as corporations, LLCs, partnerships, etc. to first obtain an EIN, even if no employees exist yet, to file necessary returns.

Applying for an EIN is free and can be completed online via the IRS website in just a few minutes.

To obtain an EIN as a digital marketing agency, simply navigate to the IRS EIN Assistant and select “View Additional Types, Including Tax-Exempt and Governmental Organizations” and then “I am starting a new business” as the reason for applying. You will need to provide basic information about your ownership structure.

In addition to a federal EIN from the IRS, digital marketing agencies with physical offices or employees based in specific states must also register with their state taxation authority to collect and remit sales tax from clients based there.

Whether serving regional or national clients across multiple states, it is imperative for digital marketing agencies to proactively research nexus triggers that legally obligate out-of-state businesses to register with and collect that state’s sales tax.

Common triggers include maintaining inventory or office space in the state, employing remote staffers residing in the state, and crossing certain economic thresholds. Consult a tax professional to ensure the establishment of compliant sales tax registration, collection, reporting, and payments right from your agency’s launch.

Staying on top of federal and state-specific tax compliance requirements as a service-based digital business ensures avoiding penalties down the road as your client base and team expands. Factor such administrative obligations into your operating budget and seek expert guidance.

6. Setup Your Accounting

Proper accounting practices are imperative right from launch for agencies to maximize tax savings and ensure financial compliance. With fluctuating client invoices and irregular contractor payouts each month, relying on manual spreadsheets often fails to paint an accurate picture of cash flow and profitability.

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Accounting Software

QuickBooks seamlessly syncs with business bank and credit card accounts to automatically import and categorize revenue, expenses, payroll, etc. Features like customized reporting, invoicing, and expense tracking ensure agencies have dynamic visibility into numbers to inform decisions. QuickBooks even supports creating and emailing professional invoices to clients directly.

Hire an Accountant

The expertise of an accountant is invaluable for handling accounting tasks and advising on tax planning strategies. Expect costs between $800 to $2,500 monthly when outsourcing to a firm specializing in professional services businesses. Common services include monthly reconciliation, sales tax filings, managing payroll, and benefits.

Open a Business Bank Account

Keeping expenses flowing through dedicated business accounts, cards, and accounting software makes categorization and tracking seamless. Come tax season, your accountant will thank you for not intermingling personal and business transactions when preparing filings.

Apply for a Business Credit Card

Apply for a small business credit card using your EIN and ensure to make occasional purchases and pay off balances promptly to establish a healthy business credit history. Limits in the $10,000+ range are readily available for cards from major issuers like Chase Ink or Capital One Spark.

7. Obtain Licenses and Permits

Several federal and local business licenses should still be obtained before serving any digital marketing clients. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.

While local general business licenses that govern activities like signage, zoning restrictions, and health codes aren’t typically mandatory for digital consultancies working remotely, registering for a certificate of occupancy can legitimize location-based nexus requirements around collecting state sales tax from clients based in the same state.

If simply renting a coworking desk or small office space for founders and remote workers in Los Angeles, obtain a COO from the LA Department of Building and Safety Commission. The $121 annual fee for businesses under 500 sq ft also covers the expense of an inspector verifying compliance with ADA accessibility, occupancy capacity, HVAC system, plus alarm/sprinklers if applicable.

While the internet enables assisting clientele globally, also research if certain municipalities require special licensing tied strictly to annual gross revenues as a professional consultancy. For instance in NYC, service firms with over $50k in annual receipts must obtain a general corporation tax license costing $300 every two years from the Department of Finance.

Specific activities may also trigger specialized permits, like as producing custom video ads for social media marketing campaigns on behalf of clients. Businesses can complete SF Film Commission permitting paperwork to legally facilitate commercial shoot activity on location across San Francisco’s neighborhoods and landmarks.

While copyright and credits handle much of the protection around utilizing imagery in digital marketing materials, registering released content with the U.S. Copyright Office is advised to claim damages in case of infringement. Filing an application online costs just $45 and doing so within 3 months of publication preserves full entitlement to statutory damages and attorney’s fees in litigation.

8. Get Business Insurance

While digital consultancies may assume business insurance coverage isn’t necessary given limited overhead and physical assets compared to retail stores or restaurants, being underinsured can still spell the demise of an agency in certain scenarios.

For example, without ample General Liability insurance, just one client lawsuit alleging harm from a digital campaign gone wrong or claiming unsubstantiated performance promises could sink the agency under legal expenses and settlement costs. Tech errors that cause client sites to crash can also yield damages without protection.

Additionally, most coworking spaces or commercial office leases require proof of insurance for occupants. Without coverage for business personal property either, valuable hardware like computers, cameras, and media production gear could be lost in a burglary, fire, or flood without adequate compensation to replace essential tools to service clients.

Lastly, Professional Liability insurance is equally critical to shield against negligence claims tied to services rendered like flawed SEO audits, security oversights enabling data breaches, copyright infringement in content production if unlicensed media gets published, and other mistakes made in good faith.

Thankfully obtaining affordable coverage to safeguard against such scenarios can begin instantly online. Expect to provide details on your services, location, clients, number of workers, and more when obtaining quotes for General Liability ($1M minimum advised) plus Professional Liability policies. Costs range from $50 to $150 monthly depending on revenue.

An insurance marketplace like CoverWallet designed for consultancies allows customizing policies and adding optional coverage like cyber liability insurance, all via a streamlined mobile/web interface using the embraced link. Payment processing is flexible allowing full annual payment or spreading costs over months.

Be sure to work closely with commercial insurance brokers as well on detailed assessments of risk scenarios your digital agency may face given niche focus areas and clientele served. Having the proper endorsements and limits defined upfront makes handling future claims smoother.

9. Create an Office Space

While launching a digital marketing agency from a home office maximizes cost savings, establishing a legitimate professional presence to impress prospective clients, affiliates and talents often necessitates leasing a dedicated workspace. An agency’s growth stage often determines the optimal work base.

Home Office

Bootstrapping agencies focused squarely on remote service delivery can feasibly start without incurring real estate costs. Dedicating a private 500 sq ft office within a founder’s residence enables focusing capital on marketing, talent, and software instead. Expect costs ranging from $100-$400 for basic furnishings, high-speed internet, subscriptions to project management platforms like Asana or

Coworking Space

Successful solopreneurs prepared to start collaborating with independent contractors can still delay signing pricey multi-year leases by leveraging coworking spaces like WeWork. Memberships provide on-demand access to lounge areas, private call booths, event space, office equipment, administrative support, and networking perks across locations for roughly $300-$800 per month per dedicated desk.

Commercial Office Lease

Agencies focused squarely on scaling through major media spends across search, social, influencer, and television advertising are best-served leasing Class A spaces in urban innovation hubs positioning their operation alongside Fortune 500 brands.

10. Source Your Equipment

Hardware and software represent one of the largest upfront investments for a new business. While buying brand-new equipment from retailers may be preferred, significant cost savings can be achieved through discounted purchases.

Buying New

For the latest Macbooks, PC laptops, iPads, printers, cameras, and office furniture, shop mainstream retailers like Best Buy and Office Depot. Opt for customizable bundles also including multi-year warranties, damage protection, upgraded processing capability, and memos to maximize usefulness across a standard 3-4 year primary usage lifecycle.

Buying Used/Refurbished

More affordably priced routes for acquiring essential hardware in dependable condition include retailers like Newegg specialize in discounted products. Significant savings can also be sourced by buying directly from sellers listing gently used gear for sale via Craigslist, Facebook Marketplace, eBay, and OfferUp.

Renting

For consultants undergoing rapid short-term scaling to resource a spike in client work on quarterly campaigns, temporarily renting equipment can provide access to premium gear without huge upfront capex. National chains like Rent-A-Center offer flexible rent-to-own contracts.

Leasing

The optimal plan for consistently acquiring new agency devices while conserving cash flow for other operational priorities, check out technology leasing companies. Qualified applicants can finance 100% of computer hardware/software costs including deployment.

11. Establish Your Brand Assets

Developing a distinctive brand identity helps emerging agencies convey expertise within a crowded marketplace while nurturing prospect and client trust. Beyond just a logo and color palette, deliberately defining personality and positioning through brand messaging creates a connection on a values level.

Getting a Business Phone Number

Acquiring a dedicated business phone and fax number instead of relying solely on personal mobile projects professionalism to prospective clients. Services like RingCentral offer vanity 800 numbers, call routing between departments and team members, voicemail to email message transcription, and easy scalability from 1-100+ extensions. Expect costs of around $30 per user monthly.

Creating a Logo and Brand Assets

A strategic logo encapsulates brand values and positioning in an identifiable, differentiated mark. While many graphic design marketplaces like Looka offer fast DIY logo generation, retaining a branding firm to workshop positioning language first before ideating visual concepts grounds the logo in a fully fleshed-out identity.

Business Cards and Signage from Vistaprint

Business cards enable founders, employees, and contractors to effectively network at events, share contact info during client meetings, and serve as walking impressions of the brand. For 500 basic cards, expect costs around $40 total. Vistaprint also provides affordable indoor signage for office spaces starting around $50.

Purchasing a Domain Name

Secure matching .com domain to reinforce the brand in the simplest, most intuitive web address form visitors naturally gravitate towards when researching services. If preferred name combos are taken, simply appending “Agency”, “Marketing” or “Media” can effectively work too. Expect to pay under $20 annually for domains from registrars like Namecheap.

Building a Website

Given most prospects will visit the agency’s website as the first touchpoint, an expertly designed, conversion-focused website is non-negotiable from day one. Those with web development/design expertise can leverage DIY site builders like Wix for $20-$40 monthly. For those lacking specialized skills, hiring web design pros from freelance markets like Fiverr or Upwork yields better quality for around $5k-$15k.

12. Join Associations and Groups

While competently serving clients is priority one, regularly networking amongst industry peers and mentors accelerates professional development and business growth. Local and national associations, casual meetups, and online communities provide support.

Local Associations

Joining regional chapters of national marketing associations like the American Marketing Association and American Advertising Federation connects agencies with established players guiding community initiatives, regulatory issues, and talent development. Expect annual local chapter dues of around $100-$300 including access to regular mixers, workshops, job boards, and more.

Local Meetups

While associations organize formal events, leveraging Meetup to find informal monthly gatherings of fellow agency owners and marketing freelancers in your metro facilitates more intimate peer sharing and mentorship opportunities. Casual cocktail hours, co-working days, or expert-led workshops provide built-in icebreakers to trade lessons learned.

Facebook Groups

With over 1 billion daily active users, Facebook hosts niche communities covering every industry and topic. Join groups like Digital Marketing USA and Digital Marketing Group enabling 24/7 Q&A amongst thousands of agency peers facing similar scaling challenges worldwide. Reddit also hosts some popular marketing subreddits like r/PPC and r/marketing.

13. How to Market a Digital Marketing Agency Business

Effective marketing is imperative for emerging agencies to drive awareness, nurture prospects, and consistently fuel new business in the pipeline. While delivering quantifiable value and stunning work products for existing clients remains a priority, founders must carve out dedicated capacity for strategic promotion too.

Personal Networking

Leveraging one’s immediate network of friends, family, past colleagues, and LinkedIn connections serves as the most accessible client acquisition channel at launch. Satisfied early customers can organically spread the word as well, and offer referral incentives like gift cards or service credits to motivate sharing success stories and endorsements publicly.

Digital Marketing

• Search Ads – Bid on niche keywords like “NYC SEO company” and “social media marketing agency Los Angeles” locally to attract prospects. Expect to invest 10-20% of revenue into paid search and optimization to capitalize on demand.
• Content Marketing – Publish weekly blog posts and videos showcasing thought leadership around specialized services. Promote new stories through email lists and social.
• Social Media – Maintain active Profiles showcasing work and team culture. Participate in industry dialogues and forums to establish subject matter expertise.
• Email Marketing – Capturing website visitors’ contact info via lead gen offers like guides, templates, and webinars lets you nurture prospects toward sales calls.
• Partnerships – Guest blog/vlog for complementary businesses to tap into their audiences. Co-host virtual workshops or webinars as well.

Traditional Marketing

• Direct Mail – Target local SMBs with postcards or sales brochures relaying services most relevant to their vertical. Expect low response rates of around 2%.
• Radio Spot Advertising – For awareness plays, geo-targeted weekend radio ad flights on local business stations can make sense. But measure direct response rates carefully.
• Trade Show Booths – While expensive to execute, sponsoring and exhibiting at major tech conferences like Adobe Summit and Dreamforce facilitates networking with prospective global brand clients.
• Local Events – Sponsoring regional chamber of commerce mixers, university entrepreneurship showcases, tech meetups, and industry awards events raises local community visibility while supporting the next-gen talent and causes.

14. Focus on the Customer

For service-based businesses like digital marketing agencies, keeping clients satisfied through prompt, caring communication and consistently strong work products builds loyalty that powers growth for years to come.

Given months or years may pass between pitching prospects and securing six-figure contracts, impressing new clients early on creates invaluable goodwill and trust as the relationship builds. Meet project milestones proactively, highlight key optimizations made, and notify stakeholders directly at the first sign of delays.

Exceeding expectations on initial mandates makes securing expanded scopes of work and multi-year retainer extensions easier since past reliability is proven. Deliver such incredible value that clients practically have no choice but to heap more projects to your agency.

Equally as important, properly supporting and advising customers through emergency scenarios like website outages or national PR crises reaffirms agencies as dependable partners for the long haul, not just fair-weather marketers.

And never underestimate the referral engine sparked by extremely satisfied customers. Build strategic reviews and testimonials sharing success metrics widely. Proactively ask happy customers if they can introduce your agency to key decision makers in charge of marketing budgets at other portfolio companies or personal networks too.