In this guide, I’ll guide you through the intricate journey of establishing an agency in 2024. With over two decades of experience in the digital agency space, I’ve founded two agencies and mentored hundreds of agency owners and entrepreneurs. My expertise spans across a diverse range of agency sizes, from solo ventures to those with large, established teams, steering them towards a more successful business and life.
What is an agency?
An agency is a specialised firm providing services like marketing, advertising, and web development, contrasting with freelancers who operate independently. Agencies offer a team-based approach, ensuring a diverse set of skills and perspectives for tailored, comprehensive solutions. They navigate the digital realm by merging creativity with technology, focusing on client-specific goals. This collective expertise, along with a structured, adaptable approach, distinguishes agencies from individual freelancers, positioning them as integral partners for businesses aiming to achieve impactful digital presence.
Why start an agency?
Starting and managing an agency is challenging, yet rewarding. It offers owners a lifestyle often unattainable in regular employment. Branding as an agency, rather than a freelancer, can command higher fees; for instance, a freelancer charging $300 daily could bill $1000 for equivalent work as an agency. This shift enables owners to concentrate on business growth and potentially automate operations, minimising their direct involvement.
Is the agency model dead?
In 2024 you might be tempted to ask if the agency model is dead. The agency model is not dead; rather, it is evolving. The rise of digital platforms, changing consumer behaviours, and the increasing importance of data-driven marketing are reshaping the landscape. Agencies that adapt by leveraging technology, offering more specialised services, and focusing on measurable outcomes for clients can thrive in this environment. The shift towards remote work and global talent pools also provides agencies with new opportunities to innovate and expand their offerings. While traditional aspects of the agency model may be under pressure, the need for expert, professional marketing and creative services remains strong. The key for agencies is to remain agile and responsive to the changing demands of the market. Agencies that are thriving right now are those that embrace technologies such as AI instead of fearing them.
Before you start an agency
Starting an agency is no small task, it’s a marathon, not a sprint. As I often joke, my 20 year get rich quick scheme is finally paying off! And sure, there is no reason it should take that long to build a successful agency and business. In fact my second agency was making 6-figures in under a year, but you do need to have a long-term mindset in order to succeed. If you just want to make cash quickly, an agency might not be the best route for you. Talking from personal experience, I’ve made a quicker turnaround of profit with property investment, however I was only able to do so because my agencies were generating enough money for me to do so.
So, before you make that final decision to start an agency, ask yourself if you are prepared to follow through with it. It can be stressful at times and has it challenges, but as mentioned the rewards can make it worth it.
The Niche Can Wait!
In preparing this article, I encountered a prevalent suggestion in many blogs: the crucial first step in starting an agency is stated time and time again to define your niche. While selecting a niche can indeed be a powerful strategy for standing out, it’s not an absolute necessity at the outset. This advice can be a daunting and unnecessary initial obstacle. The reality is, launching your agency should be the primary focus. Your niche and positioning can organically develop over time. Finalising a niche can take years, a period that could be better spent building your agency, acquiring clients, and gathering experiences that will naturally shape your niche.
The Real Number One Priority
So, what should be the top priority? Consider Maslow’s Hierarchy of Needs, which suggests addressing fundamental requirements before anything else. For an agency, these ‘basic needs’ translate to securing work and ensuring cash flow. While strategizing and niche selection are important, they can’t precede the essential task of bringing in paying clients. Running out of funds before achieving this can be a real risk often resulting in the agency founder reluctantly giving up their dream and hastily seeking employment. Therefore, focus on this as your main goal. Adopting a sense of urgency is beneficial, even if you have a financial cushion or another income source. Treating client acquisition as an immediate need will bring about positive results more quickly. Have some fire in your belly!
Social Proof
In order to get client work you need to be able to show that you can do the work. Ideally you will have work you can leverage for this, but don’t worry if you don’t.
When starting a digital agency without a client portfolio, consider leveraging your work and education history for social proof. If you’ve worked for notable companies, even as a contractor, this experience can demonstrate your capabilities. If direct experience is lacking, create case studies for potential clients or niches. Offering free audits or projects can generate initial case studies and build relationships. Networking and connecting with potential clients is crucial, as demonstrated by organising events or reaching out for pro-bono work. Personal projects also add value, though they may carry less weight than client-based work. Once you have social proof, it’s vital to showcase it effectively on your website and in a credentials document to reassure potential clients of your expertise.
Testimonials and case studies can further add to your credibility, so have a think about how you might be able to build upon that as well.
Build your team
The landscape for starting an agency today has transformed dramatically from when I launched my first agency. Back then, freelancers and remote workers were a rarity, often local and not always reliable. The measure of success was often the headcount of your team. I too fell into this mindset, expanding my team to eight full-timers alongside a handful of freelancers giving us over 10 staff, naively aiming for a 20-strong workforce. In hindsight, this approach was misguided, as a larger team doesn’t always equate to greater profitability due to increased wage costs.
In contrast, the modern agency model embraces remote working and global talent pools. Today’s wealth of reliable freelance platforms like Upwork, Fiverr, and Toptal makes it feasible to build a flexible workforce, scaling up or down as needed. This approach not only optimises operational costs but also allows access to a diverse set of skills. If I were starting anew now, I’d lean heavily on this model, slowly integrating full-time staff as the agency matures and its needs become more defined.
One huge advantage of this modern approach is being able to work remotely, giving you the flexibility to pick and choose where you want to live. Some people become digital nomads, traveling their world, bringing the business with them in their laptop. Sometimes I do miss being in the same room as my team, but I travel to the UK often to see them and I think the tradeoff is a good one.
Set Your Financial Goals
Defining precise financial objectives is crucial for your agency. For instance, if your goal is to earn $100k per year after tax, understanding the difference between profit and revenue is essential.
Consider this: a small agency using freelancers might operate at a 50% profit margin. Taking into account taxes, you’d need to generate approximately $200k in revenue to achieve a $100k post-tax income, depending on your country’s tax regulations. Large agencies will generally be less profitable, and a 20 person agency generating 7-figures of income is more likely to be closer to 25% than 50%. In this instance, the agency owner would need the agency generating $400k of revenue, and this does not take into account the tax. Once you factor in taxes, you are looking at around $500k, so a half a million dollar business. Clearly just looking into the figures here will affect your approach to how you build and scale your business.
Tax efficiency varies by location. In the UK, for example, (and I’m going to keep to dollars for the sake of simplicity) extracting income from a company can be around 50% more tax-efficient than being taxed as an employee in a higher bracket. To net $100k after taxes as an employee in the UK, you might need to earn upwards of $170k. As a business, the required profit would be closer to $120k, a huge difference of $50,000 or 30%.
Then there are other things you can do such as move to a country like Portugal that has tax schemes whereby you do not pay personal income tax or dividend tax. Doing so saves me a considerable amount of money each year and it is definitely worth looking into this as part of your long term tax and financial strategy.
Financial literacy is vital in building a successful business. Set realistic short-term goals, like acquiring one new client per month at $2k each. This target may be challenging initially, but by the third month, you could be in a more stable position. Tailor your plan to your circumstances.
Just Start!
The next step is to take action. Many dream of building an agency but delay starting. The key is to initiate tasks and begin building your agency. Simple advice, yet crucial: don’t overthink, just start.
3 Things I wish I knew on Day 1
Ask the budget
If there was one single thing I wish I did from day one when I started out, it would be to ask the budget instead of assuming I knew based on perceived market rates. This is a huge topic and I’m actually developing a course all about this called Perfect Proposals.
Delegate Whenever Possible
Most agency owners are a bit of a control freak. They are used to doing the work themselves and expect a very high standard. They often feel disappointed when they hire someone that doesn’t do it to their exact standards. I was one of these people. I soon learned it’s more efficient to let other people do some of the work, even if is was only 80% as good as doing it yourself. To do otherwise is not scalable and no one else will be as invested as you are at generating new business and driving the vision and culture. One role not to delegate early on is hiring a salesperson.
Get a mentor
Clearly I’m a fan of mentoring, after all I run a successful mentoring business. I created this business because it was only when I hired a mentor did I start to really see progress. This set me on a path to a life I couldn’t dream of when I started out, allowing me to buy our dream home and build an amazing life for my family.
I can only imagine the progress I would have made if I’d have worked with a mentor from day one, instead of many years into my agency business.
So if you want to start an agency or improve an existing one, and you would benefit from some guidance from someone that has been there before you, book a free call with me!