If you wanted to start a marketing agency over 25 years ago, the barrier to entry was colossal. With a primitive digital landscape, the effort required to launch such an operation was daunting and nearly impossible without initial investment. In addition to startup costs, you were limited to physical and traditional media and the headaches associated with producing something that resembled ROI for your clients. It was inevitable to be “in the red” for a very, very long time.

Times have changed.

It’s not impossible to believe that a qualified person or small team can create a fully functioning marketing agency from scratch in a matter of months (with a little help, of course).

Companies are spending more of their marketing budgets on digital advertising than ever before, and everyone wants a piece of the action. In this guide, I’ll walk you through the five steps to follow if you want to build an online marketing agency from scratch (trust me, I’ve been there).

#1: Develop the Necessary Skills.

If you are a narcissistic Gen Z ‘ er with grandiose visions of becoming Neil Patel right after you accept your diploma, you will probably fail miserably.

You can be as creative and intelligent as anyone in the game, but if you’re not ready and experienced enough to handle the many nuances of managing accounts and client relationships, you’ll be looking for another gig really fast. It can take years for some to build the necessary skills, others not so much. Regardless, I think you actually need to hold a real job for some time before venturing out on your own.

Work environments are much more complex than we realize while we grind in them. Above the actual work you produce, there are a variety of expectations, verbal and nonverbal communication gymnastics and politics. Everything from the structure of the organization to its culture, product, and leadership plays a role in the evolution of your daily life (and career).

Before you can master your digital marketing skills, you need to experience what it’s like to work where your customers can work. This will inevitably make you a more understanding and well-rounded professional. If your customers are stressed and may project that onto you, you won’t take it personally.

That being said, it’s important to understand that soft skills are only 50% of the end product that you are. You need to get good at what you will provide as “professional” services. No matter how slick your sales game is, a client will sooner or later realize they’ve been sold snake oil. You need to be able to drive results. If you start your career managing clients for larger agencies, I would encourage you to actually work on a marketing team or pick up a handful of small clients to learn the channels and skills you will be executing.

I was fortunate to start my career on the marketing team at WordStream, where I was able to develop my paid acquisition skills. What might be unclear to those who have never been on a marketing team is how much actually goes into it. Aside from the production pressures, you have to learn complex systems, and if the team is small, you have to develop a variety of skills to get even the simplest campaigns off the ground.

This includes, but is not limited to:

Create landing pages
Designing ads
Building messaging and positioning
Learning systems such as Marketo, HubSpot and Salesforce
Proper implementation of tracking
Spending hours on a promotion only to watch it fail
Significant production pressure
The benefit of managing customers is that many of these aspects are taken care of before they get to you. However, if you have the experience of working on these things, you have the added value of actually knowing what you’re talking about when something you give them doesn’t work. It also helps you deal with the pressure to deliver quality results because you’ve been there before…often.

TLDR: Put the work in at a 9-5 before you get yourself noticed. You can’t sell yourself as a digital marketing expert without being a digital marketing expert.

#2: Be a contractor before you become a founder.

Having a job that pays and allows you to undergo brain surgery without a lifetime of debt is a luxury many of us take for granted. Taking the leap of working for yourself has a list of risks so long that it could make for separate blog post. What mitigates much of that risk is developing the foundation for a business before making the decision to do it full time. I suggest doing some contract work on the side for a period of time while holding a full time job for a variety of reasons, chief among them….

It allows you to strike out on your own without taking much risk
You get a taste of the entrepreneurial life when you start doing side work. From invoicing to setting aside extra tax money, the small but very important elements of running your own business come into play.

You also need to manage your time wisely if you still want to have a full-time job. This means working nights and weekends when you’d rather be watching Netflix.

Building relationships as a contractor is also valuable in that it can get you referrals down the line. If you can pay your bills as a contractor, transitioning to a one-person agency is much easier than starting from scratch.

Another aspect of managing clients as a side gig is that you have experience writing contracts. You need to get used to putting together a proposal, then a contract, and then signing the required paperwork (NDA ‘ s, etc.). It’s a part of the game you want to optimize to reduce the time it takes to onboard new clients.

It allows you to build valuable relationships
Being able to do some side work through mutual connections, former employees, or just networking will give you the experience you need to build and maintain client relationships.

Having to negotiate the cost of your services is another skill that many overlook early on.

Your time and expertise are worth something regardless of how well you know the person on the other end. Building the ability to determine how much you should charge for a particular project or service becomes extremely valuable down the line.

#3: Develop the right business model
There are many different ways to set up a digital marketing agency. The services you provide and how you charge for your work will become an important part of managing your business efficiently over time.

The most common ways to bill your clients are as follows:
Many consultants choose to bill their clients hourly. This is because much of their time is one on one with clients, whether by phone or directly in person. This billing model becomes muddy over longer and more complex service offerings.

Fluctuations in digital marketing hours for a given client are common; It will vary greatly over time. There are a variety of factors at play: setting up and launching entirely new campaigns or promotions, restructuring accounts, time spent on calls, and maintaining something that works well for them.

It becomes difficult to say I spent “X” amount of hours per week doing this, so I’ll bill you. It can also make the client wary of wondering how long certain actions will take per week. Unless you offer one-on-one consulting as part of your service offering, I would stay away from the hourly billing model.

Flat holder
The flat holder is the simplest of all pricing models. You assess how much the work and time is worth to a particular client, and you both agree on a flat monthly fee.

Aside from simplicity, you can reduce the friction of sending out the invoice. The client knows exactly how much it will cost them and if you meet their expectations, they will have no problem paying it.

The downside is if you have a customer that scales exponentially over time.

I suggest having an agreement in your contract that guarantees that price for a certain period of time (possibly quarterly). then you can renegotiate once that time is up. The biggest advantage of a retainer – based model is that you can forecast your revenue and hypothetically see how much you will make if your current customers stay a full 12 months. This is essential for growing the business as you can set goals and prepare for setbacks.

This also plays a big role when hiring or outsourcing work becomes necessary (step 5).

Percentage of spend
This pricing model is very popular with agencies as it affects the growth potential and scalability of the client. After agencies reach a certain level of maturity, they will turn down clients with little or no existing spend.

If you are just starting out, this may not be the best option as you look to grow your network, but over time you will find that larger clients are far more beneficial to you for a number of reasons. The downside isif you decide to run businesses entirely on a percentage of spend model because there are many internal factors within businesses that will dictate budget. Some of these factors are under your control (results), but many others are not (internal decisions, seasonality, other costs). You don’t want to be in a situation where your customer spends a very small amount per month and you only get 10% of that with the expectation of being called and putting the time on it.

My suggestion is to start with a flat fee as mentioned above and then as your agency grows, implement a percentage of spend model in addition to the retainer. This makes it clear to the client that if they want to scale and spend more, more work is needed on your end to make it happen.

This is often used by agencies to gain a competitive advantage over others.

Essentially, they only get paid when the client makes money on a sale.

This sounds enticing early on because you want to build trust with a client that you will do everything in your power to help them succeed. People who have not had experience with agencies often bring up the fact that they have paid all kinds of money only to have no results or ROI. A gun-for-hire approach like this can seem really enticing to a client who has been burned before.

The downside to this model is that it makes billing extremely difficult unless you have good visibility into the operations end of the customer’s business. For SaaS companies and companies with complex sales funnels, this pricing model would be an absolute nightmare. I would only suggest this model for e-commerce or customers that sell things directly. This way you can assess how many sales you have made and do the math that way. Another disadvantage is the fact that it relies heavily on the product sold. If there is a significant profit margin, then it makes sense. Otherwise, you can give yourself an unnecessary headache.

The best advice I have is to keep it simple. The last thing you need is to be solving mathematical equations at the end of each month and not know how much you’ll make.

Taxes, liability, and the power ” ” to have a guy do it.”
A few other key aspects to understanding the business model are liability and taxes.

If you decide that building an agency is what you want to do, create an LLC or SCorp. This grants you personal legal protection if something goes horribly wrong (lawsuits). It also allows you a variety of tax advantages. I would suggest creating an LLC or SCorp as soon as possible, as this will legitimize your business in the eyes of both the customer and Uncle Sam.

Oh, and get a tax person.

If you are very savvy with taxes, then by all means do them yourself. However, for the ordinary person, there are so many nuances to running your own business that it makes sense to delegate that responsibility to an expert (as your clients do with you!). You can save a lot of money by having a professional file your taxes quarterly to help you take write-offs.

#4: Define your niche.
When you’re first starting out, it’s easy to get seduced by the prospect of working with a business.

The thought of having to turn someone down can cause anyone some cognitive dissonance when their livelihood is on the line. That being said, there are thousands of digital marketing agencies and consultants. Some of them specialize, but many of them don’t.

If referrals don’t flow like Capistrano’s salmon, you need to stand out and create a unique selling point when approaching new prospects.

Aside from the added value of specializing in one industry or type of customer, there are myriad benefits to focusing your services on a well-defined niche. Here are some of the most notable:

It makes onboarding easier
When you take on someone as a client, there are so many variables to look at before deciding whether or not it’s a good decision to do business with them. When your ideal customer is clearly defined, this process is streamlined because you know what types of questions and information you need to get from them. You also have perspective on how these companies run internally and how much you would charge them on average.

It strengthens your skills exponentially
If you know digital marketing (specifically paid), you can essentially run ads for most companies. However, you need to learn the target market and formulate effective messages. This can take a lot of time if the business is unfamiliar or abstract, which you’re used to working with, which inevitably leads to problems early on when things don’t go so well.

If your ideal client is already defined, you will gain a wealth of experience working with that type of client. This builds the muscle memory and intuition needed to know what decisions to make and when to make them. It makes you more efficient because you’ve seen the problems before and know how to deal with them. It also makes you adept at recognizing customers you don’t want to do business with.

It gives you a competitive advantage
As I mentioned earlier, there are so many people out there slingin’ ads and takin’ names.

The internet has allowed the hackiest hacks to succeed. Due to the fact that there are so many inferior agencies out there, targeting your business to those who are just like them gives the client far more peace of mind. Being” insert niche here ” agency gives you the social proof and expertise to confidently address the needs of these individuals their organizations. It gives you an extra layer of trust and relatability that is so often lost in this industry.

#5: Decide How You Want to Scale.
When you tell people you’re going to run your own agency or consultancy, remember that you’re going to rent out an office space and hire a bunch of employees. Most of the time, this is the worst decision you can make. If you are like 99% of the population, you probably have bills that need to be paid. If you want to start and grow, you need to make sure you can survive personally first.

When building a successful agency, the key is to be highly skilled at what the agency does first. Managing the accounts yourself over a period of time will not only allow you to hone those skills, but also find talented help as you understand the skills and knowledge required for the job.

You also need to understand what the cost of that help means to you financially. What is your customer churn rate? Average customer lifetime value? How are you acquiring new customers? Hiring an employee will add an extra layer of complexity to all of this.

Convincing someone to work for you is another matter entirely. Employees are employees because they want security. So if you’re not at the point where you can offer them benefits and pay them well, they won’t be interested in taking the gig. The cost-effective antidote to this problem is simple: find contractors.

There are so many talented people out there willing and able to help you on a contractual basis. You don’t have to provide these people with benefits, and they are an easy write-off on your taxes. Being able to delegate monotonous or time-consuming tasks to a trusted contractor is a great burden for you when you are focused on taking on business. Using this method, you can scale to a point where full-time employees make more sense. Contractors may decide to join you full time if things are going well and they have already proven their expertise to you.

All of this advice comes from starting an agency yourself. If you have a partner or two who want to do it with you, it changes things quite a bit. That being said, the profits will be split and you will either have to charge higher rates or take on more clients to make it beneficial enough to be better than a normal day job. Just something to note.

There is a culture in today’s age of startups that extreme growth is the only marker of a successful business. There is a lot of pressure when it comes to taking on more clients, and you may find that you can be financially satisfied with a certain number of great clients. You may ultimately decide that rapid expansion is not best for you. If you don’t have outside investors breathing down your neck, the ability to live a financially stable (if not better) life on your own terms may be more enticing to you.

Running a sustainable agency yourself also gives you the freedom to exit the business easily and on your terms if you need to (no layoffs, no office to sublease, no 45-pound bag of coffee beans). You may also find that running an agency is not something you want to do forever. You can use it as a form of investment for other business models that you may be more passionate about, but take time to develop.

Running your own business for a period of time will give you an invaluable amount of business experience and build valuable relationships that you can rely on in the future.

Be sure to decide

If you’re reading this post, you’ve probably already ventured out on your own or you’re thinking about it. My overarching advice is to make a decision and stick with it.

Managing your own business has many ups and downs and you need to be able to weather the storm to reap the benefits. It is a dramatic life event and you need to treat it as such. If you feel early on that you are not cut out for it, don’t drag yourself along any longer than you have to. If you make a decision but don’t believe in it, you will fail. You need to make a commitment. Once you do, you can discover how extremely fulfilling running your own digital marketing agency can be.