The social media and digital marketing industry is booming, having earned $365.37 billion in 2022. As more businesses realize the power of establishing an online presence and connecting with customers, the demand for social media marketing services continues to grow rapidly year after year.

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Whether you want to help businesses attract more followers, increase engagement, or drive sales through paid ads, starting a social media marketing agency allows you to tap into this high-growth industry. With the right strategic approach, this field offers aspiring entrepreneurs a massive opportunity to build a sustainable and profitable business.

This guide will walk you through how to start a social media marketing business. Topics include analysis of other social media marketing agencies, market research, registering an EIN, forming a legal business entity, sourcing equipment for your social media management company, and more.

1. Conduct Social Media Marketing Market Research

Market research is important to your social media marketing company. It offers insight into the top-performing social media platforms, the target market for potential clients, and even how to build your social media strategy as a social media marketer.

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Some details you’ll learn through market research on your own social media marketing company include:

• The social media marketing industry has experienced rapid growth over the last decade.
• Driving this growth is the rising popularity of social networks like Facebook, Instagram, Twitter, LinkedIn, and YouTube.
• In terms of market segments, social media advertising presents the biggest money-making opportunity for aspiring marketers.
• When analyzing the buyer demographic, over 90% of marketers believe social media marketing provides increased exposure and traffic for businesses according to Social Media Examiner.
• The primary buyers are small businesses, startups, solopreneurs, influencers, and personal brands who either lack the expertise or time to manage platforms themselves.
• Services most in demand include content creation, community management, influencer collaborations, visual branding, and ad campaign management.
• Given the scalability of digital services and relatively low overhead costs, the profit margin potential in the social media marketing field is extensive.
• Agencies typically charge monthly retainers ranging from $1,000 for basic community management to $10,000+ for expanded service bundles.
• High-performing individual freelancers can also earn hourly rates between $50 to $500 once establish expertise and a portfolio.

With brands pouring larger portions of budgets into digital and over 3.96 billion people active on major platforms, the outlook for the social media marketing industry remains highly optimistic. Whether aiming to build a solo consultancy or a full-fledged agency, now presents a prime business opportunity for aspiring founders to carve out market share.

2. Analyze the Competition

When starting a social media marketing business, it’s critical to analyze competitors to identify strategic advantages and obtain more social media accounts. The competitive landscape consists of freelancers, boutique agencies, large full-service firms, and potentially even brick-and-mortar marketing companies expanding digitally.

Begin by searching industry keywords like “social media marketing agency [your city]” and compiling a list of businesses appearing repeatedly in the results. Visit the website and social media pages of each competitor to evaluate services, pricing models, client types, aesthetics, and thought leadership positioning. Make notes on strengths and weaknesses.

For example, a freelancer may provide affordable community management packages but lack creative firepower for visually engaging content. On the other hand, a large firm may land big-budget clients but overextend capabilities leading to potential customer dissatisfaction.

Use tools like SEMrush and Buzzsumo to gather key competitor metrics ranging from monthly web traffic and rankings to social media followers and engagement rates. This quantifies their digital reach and sheds light on gaps your startup could fill. Monitor regularly to analyze growth trends.

Set Google alerts with competitor names and closely followed company announcements, new service launches, client partnerships, awards, media mentions, etc. This surfaces strategic insight on differentiating value propositions that earn attention and business in the marketplace.

3. Costs to Start a Social Media Marketing Business

Before you start setting up social media posts for clients, you need to develop a business plan and budget. From renting an office space to developing your own social media marketing strategy, you’ll encounter startup and ongoing costs.

Start-up Costs

When starting a social media marketing agency or consultancy, the initial expenses consist of legal formation, branding and web presence establishment, equipment, software, and optional office space.

• The legal formation process runs $100-$800 depending on whether you register as a sole proprietorship, LLC, S Corp, or C Corp. Trademarking a unique business name generally costs $275.
• Developing a brand identity and professional website leveraging templates on platforms like Squarespace or Wix ranges from $15-$50 per month. Factor another $100-$300 for logo design and copywriting.
• Basic equipment like a laptop and smartphone are necessities, though initially relying on personal devices you already own helps minimize overhead. For long-term growth though, invest $1000-1500 to acquire business-designated gadgets enabling seamless client work.
• The first year should factor $1000-1500 establishing an optimized digital environment.

Ongoing Costs

• Renting coworking space or small offices starts at around $200 monthly in most cities. However, as an online service-based business, operating virtually from home cuts costs in the early stages.
• Year one also involves miscellaneous expenses like website hosting ($150 annually), accounting software ($120+ annually for QuickBooks), and minor supplies. If hiring contractors, ensure properly classified with an annual tax spend of ~$800.
• Tallying it up, the first-year costs range from a lean $1500-$3000 bootstrapping operation up to $6500+ for a setup with dedicated tools and real estate.
• On the flip side, monthly recurring obligations focus primarily on labor, marketing/ads, and software subscriptions as you scale.
• Expect to allocate 50-75% of revenue back into payroll as bringing on additional marketers, designers, and account managers proves necessary to service growing accounts. Individual salaries vary based on experience level but plan $4000+ per new hire.
• Paid ads and organic boosting on platforms like Facebook, Instagram, LinkedIn, Twitter, Quora, etc connect services to audiences most likely to convert into clients. Allot 15-25% of revenue for continually testing and optimizing digital promotion channels.

Software subscription costs also incrementally increase as added team members leverage tools. Budget a few hundred dollars for miscellaneous apps and integrations.

4. Form a Legal Business Entity

To start a social media marketing business you must first form a legal business entity. There are four main options in the United States for a business entity, including:

Sole Proprietorship

When structuring a social media marketing agency, a sole proprietorship exposes owners to substantial personal liability without corporate protection. Though economical to establish as a sole founder, this entity directly ties your assets to the business.

Partnership

Like a sole proprietorship, a partnership offers clear ownership guidelines. It’s a great option for a family business where multiple owners want equal control over the company. On the downside, it also leaves personal assets at risk.

Corporation

C Corporations levy self-employment taxes, complex accounting requirements, and stricter regulatory compliance even for bootstrapped founders. Ownership percentages also don’t automatically transfer tax benefits. Unless pursuing VC funding with an eventual IPO exit, the rigidity undermines optimization flexibility crucial during the early stages.

Limited Liability Company (LLC)

LLCs provide the best of all worlds – limiting legal liability for owners while enabling taxation flexibility akin to a sole proprietorship or partnership. LLC operating agreements also allow adaptive ownership structures as your social media marketing agency evolves from solo to potentially many employees. LLC formation does involve state registration filing fees from $100 to $800 depending on location.

5. Register Your Business For Taxes

Before accepting any client payments, it’s imperative to register your social media marketing agency for necessary federal and state tax compliance obligations.

The first step every LLC must complete after formation filing is obtaining an Employer Identification Number (EIN) from the Internal Revenue Service, which serves as your company’s social security number for tax purposes.

Applying takes just 5-10 minutes for free through the dedicated IRS portal. Simply provide basic information like LLC name, principal business location, and mailing address then submit to instantly receive your EIN.

Gaining an EIN lets you open a dedicated business bank account, legally invoice clients, authorize company credit cards under your LLC, hire employees and contractors, and correctly file state/federal taxes each year to avoid audit risk and penalties.

Additionally, ensure your social media marketing services comply with state and local sales tax registration regulations where your agency is located which varies based on nexus clauses and jurisdiction thresholds.

For example in California, an LLC must collect and remit sales tax if generating over $100,000 in revenue or 200+ transactions annually direct to CA consumers. State registration costs range from $0 to $100+ depending on form complexity and locations collected.

Partnering with an online payment processor like Stripe also automates the state sales tax calculations and reporting based on customer locations, saving tons of compliance headaches.

Finally, while not required immediately, social media agencies with sizeable contractor budgets should eventually explore obtaining a Certificate of Worker’s Compensation Insurance to protect from any on-the-job incidents. Quotes start around $49 per month.

6. Setup Your Accounting

Managing finances represents one of the biggest pain points for service business owners. However, implementing accounting software and an experienced bookkeeper from launch establishes organization and compliance that saves monumental time while preventing IRS issues as your social media agency scales.

Accounting Software

Platforms like QuickBooks seamlessly integrate with business bank/credit card accounts to automatically import and categorize transactions, generate financial reports, send invoices, track receivables, ensure tax accuracy, and more. Automation liberates founders to focus on sales and delivering client value rather than manual data entry or reconciliation.

Hire an Accountant

Supplementing with an expert bookkeeper/accountant who understands the digital marketing niche provides an affordable backstop checking financial health and tax compliance monthly or quarterly. Expect rates around $100 per hour for ad-hoc tasks like correcting QuickBooks errors up to $2,000 for fully outsourced controllership.

Open a Business Bank Account

Maintaining completely separate business and personal finances further simplifies reporting obligations and prevents commingling unallowed deductions if audited. Clone existing credit/debit setups by opening dedicated small business accounts specifically for your agency.

Apply for a Business Credit Card

Applying for a business credit card also helps track expenditures. Expect potential limits of and $5000 for new ventures due to lack of credit history. Utilize profitably then request larger limits to cover larger ad buys or new equipment like high-end cameras, video gear, etc.

7. Obtain Licenses and Permits

All businesses formed in the United States require appropriate permits and licenses to operate. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.

As long as registering properly as a business entity like an LLC, obtaining an EIN, collecting/remitting sales tax appropriately per state thresholds, and complying with general business regulations around areas like data privacy and worker classifications, legal prerequisites to launch a compliant social media agency cover the basics.

There are some exceptions worth noting though. If deciding to rent office space, ensure familiarity with local zoning ordinances and commercial lease regulations within the city or county. Occasional photography/video production for social content also requires location filming permits.

Additionally, while no overarching license governs advertising or marketing, specialized services within digital like lead generation, public relations, and talent management often stipulate registrations, background checks, or bonding/insurance requirements tied to other statutes.

But just focusing on core social community management, content production, influencer partnerships, ad management, and analytics/reporting – simply structuring legally as an LLC registered appropriately in your state provides full authority to immediately begin serving clients after formation.

As the business evolves, continually verify compliance with any new or updated labor, privacy, or data regulations at the federal and state levels. However, the barrier to begin operating a solo social media consultancy remains pleasantly low from a licensing and permitting standpoint.

8. Get Business Insurance

Though not legally required, securing business insurance protects a social media marketing agency from financially crippling lawsuits or disruptions. For less than $100 per month, tailored policies safeguard against risks like professional errors and omissions, employee injuries, equipment theft, and breaches.

Without adequate coverage, a single client dispute could evaporate personal savings and LLC assets. Consider a scenario where your agency’s negligent oversight of an influencer campaign negligently damages a brand’s reputation, warranting a multi-million dollar settlement. Or a workplace accident leaves a contractor with long-term medical bills owed without a policy.

The right insurance dampens this exposure to keep your LLC, personal finances, and hard-built business secure if the unthinkable happens. Packages like Hiscox small business policies extend professional liability, general liability, cyber and data breach, plus equipment coverage for under $70 monthly.

At a minimum, investing in a basic professional liability plan provides a retainer to cover legal expenses and settlement costs if hit with an allegation tied to your services. Simply answer a few qualification questions on sites like CoverWallet then get instant quotes for coverage tailored to your agency.

Approval only requires payment after selecting an optimal policy quote. This grants necessary peace of mind so social media marketing founders can confidently sign larger MSA agreements and enterprise contracts without putting personal assets at stake. Never cut corners that could cripple everything you’ve built if caught off guard by the unexpected.

9. Create an Office Space

As a solopreneur consultancy, operating a social media agency from home cuts costs and provides flexibility to meet clients at coffee shops or coworking spaces closer to them.

Home Office

Converting an extra bedroom into a basic home office with a desk, computer, phone, and supplies requires little financial investment beyond existing mortgage/rent and wifi. Meetings are simply scheduled at alternate locations like cafes, libraries, or shared spaces nearby for a change of scene.

Coworking Office

However as staff expands, establishing a more official centralized office location becomes necessary for productivity and culture. Before committing, trial options like WeWork provide professional infrastructure and networking perks without long leases. Hot desk memberships start at around $300 monthly in most cities.

Retail Office

Eventually securing a long-term retail office space creates stability and credibility for larger agencies supporting Fortune 500 brands. Expect $20-$40 per square foot for lease terms around 3 to 5 years including utilities and maintenance in most suburban commercial buildings.

10. Source Your Equipment

Launching a social media consultancy primarily requires technology like laptops, video cameras, editing software, and miscellaneous items for content shoots. While startups can incur major costs on bleeding-edge gear, going affordable routes won’t undermine quality or capabilities early on.

Buy New

New tech enables higher quality and consistency in your marketing endeavors. BestBuy and OfficeDepot run frequent sales if monitored carefully. Factor possible 10-20% initial loss in value too when reselling later.

Buy Used

Buying used offers like-new equipment without the price tag. Local options like Craigslist and Facebook Marketplace list deals from everyday sellers clearing houses. Expand brand keyword searches city-wide for the widest selection. Check electronics like computers, tablets, and camera equipment used to develop visual ads before purchasing.

Rent

Renting gear monthly also adds capabilities without major capital costs. For visual ads requiring high-quality images, National chains like LensRentals ship precision equipment for cameras. For context, leasing a pro-level Canon camera and lens runs under $100 weekly. Compare options if projects remain infrequent.

11. Establish Your Brand Assets

Implementing a strategic branding framework cements identity and professionalism that attracts ideal clients. Investing in visual assets, contact information, web presence, and marketing collateral sets agencies apart while ensuring memorability.

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Get a Business Phone Number

Acquiring a unique memorable business phone number radiates legitimacy and provides a centralized contact hub. Services like RingCentral offer Vanity 800 toll-free with unlimited calling/texting from $30/month per user. Reliable VoIP capabilities also enable remote call routing to any employee worldwide.

Design a Logo

A polished brand logo visually encapsulates the mission and positioning in an iconic mark. Looka’s AI logo maker generates hundreds of on-brand concepts matching specified styles, imagery, and fonts within minutes for under $50. Full branding suites with complementary colors, patterns, and graphic elements create cohesion across assets.

Print Business Cards

Printed marketing collateral like business cards, letterheads, and signage repeatedly display information to contacts. Vistaprint provides affordable, high-quality templates tailorable with personalized logos and messaging. Bonus: request 250 premium cards for free during checkout.

Get a Domain Name

Purchasing a clear domain name improves discoverability and recall while preventing impersonator sites. Services like Namecheap are secure.COM registrations for $15 yearly alongside affordable hosting plans to launch sites.

Design a Website

Every agency needs a lead-generating hub highlighting services, case studies, and thought leadership content. Leverage intuitive website builders like Wix for drag-and-drop layouts requiring no coding expertise. Alternately, hire expert freelance designers affordably from marketplaces like Fiverr to handle technical complexities.

12. Join Associations and Groups

Tapping into knowledgeable communities accelerates skill development while providing insider access to partners and mentors. Local associations, trade events, and online forums offer invaluable wisdom.

Local Associations

Joining niche groups like the American Marketing Association and American Advertising Federation connects to established thought leaders guiding strategy for national brands. Access member directories to discover hometown agencies and cold email experts about informational interviews.

Local Meetups

Meetup streams worldwide networking events from startup mixers and creatives meetups to masterminds covering tactics across digital marketing, branding, content creation and, more. The Social Media Marketing meetup group provides both local venues to bounce ideas off other founders alongside live-streamed workshops from global experts.

Facebook Groups

For reliable day-to-day support as questions arise, countless Facebook communities exist covering all aspects of building a marketing agency. Social Media Marketing Helping/Tips Group USA, UK & Canada Etc and Social Media Marketing have thousands of members posting daily discussing ideas and effective growth strategies.

13. How to Market a Social Media Marketing Business

Implementing consistent brand visibility strategies fuels sustainable client acquisitions as an imperative priority for service businesses lacking physical storefronts. While delivering excellence generates referrals, founders must proactively promote their expertise directly to prospects first.

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Personal Networking

Tap into existing personal and professional circles by sharing launch announcements across email, texts, social media, and phone calls. Offer discounts or extended trials for connections willing to take a chance on being first clients.

Incentivize happy customers with referral bonuses or co-marketing collaborations in exchange for introductions, testimonials, reviews, or case study interviews. For example, commit to donating to a client’s sponsored charity event for every lead they help convert into a paying account.

Digital Marketing

Digital channels present low-cost ways to reach wider audiences primed for social media services.

• Launch Google and Facebook ads targeted locally by interest keywords like “social media manager” and metro regions. Focus solely on ROI metrics like cost-per-click and conversion rates while testing varied creative.
• Start an educational YouTube channel or podcast covering social media tips for business owners in your niche. Embed opt-ins across platforms to build email lists.
• Guest posts on industry blogs aligned to your expertise levels like Social Media Today and Convince & Convert with contributor backlinks.
• Run an influencer marketing campaign gifting micro-influencers in exchange for posts and stories showcasing your services.

Traditional Marketing

Traditional options like direct mailers, chamber events, or local sponsorships maintain some relevancy but compare ROI to modern digital trails first. For example, secured speaking sessions at startup conferences reach engaged individuals.

Balance brand lift initiatives with targeted customer acquisition sources, then double down on proven channels demonstrating consistent pipeline contributions. Track marketing budget allocations and corresponding lead-to-customer conversion rates to optimize spending. Every agency must dedicate energy towards promoting themselves before pushing clients’ agendas.

14. Focus on the Customer

Delivering white-glove service creates enthusiastic brand ambassadors that drive referrals, boost retention, and cement 5-star reputations for social media consultancies. In an intimate field built on trust, ensuring positive experiences makes or breaks agencies.

Consider bringing on a new tech startup seeking an amplified but authentic Instagram presence. Handholding their team through content planning, hashtag research, influencer partnerships, and reporting insights builds familiarity spurring referrals within their network of peer founders.

Conversely, lacking account management responsiveness to campaign questions or strategy shifts from that same startup risks damaging hard-won trust. The repercussions cascade from a strained relationship to negative reviews on social/directories to lost future revenue.

But brands who feel their success remains an agency’s top priority reward loyalty in kind. Solicit customer feedback surveys after each campaign wrap wraps to uncover friction points before they emerge publicly across review sites.

Empower account managers to delight clients with small gifts like Starbucks gift cards for top-performing posts. And never underestimate personal touches like checking in on their latest funding round or product launch to demonstrate genuine care beyond the retainer.