How to Start an Advertising Agency
In today’s marketing-saturated world, businesses need creative and effective advertising campaigns to help attract customers. Advertising agencies specialize in creating and planning these campaigns. In the United States, which is the world’s largest advertising marketplace, the industry’s annual revenue is $44 billion and growing.
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Learn how to start your own Advertising Agency and whether it is the right fit for you.
Start an advertising agency by following these 10 steps:
- Plan your Advertising Agency
- Form your Advertising Agency into a Legal Entity
- Register your Advertising Agency for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Advertising Agency
- Get the Necessary Permits & Licenses for your Advertising Agency
- Get Advertising Agency Insurance
- Define your Advertising Agency Brand
- Create your Advertising Agency Website
- Set up your Business Phone System
There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your advertising agency. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
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STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening an advertising agency?
Since advertising agencies provide services rather than products, the startup costs of starting an agency are minimal. Ideally, agencies should have an office for meeting clients, computers for working on projects, an internet connection and a printer for printing any physical marketing collateral. Agencies also need a website.
There are ways of keeping rent, computer costs, internet access and utilities, and printer costs extremely low, though. Business owners who are operating on a tight budget can:
- Rent an office on an as-needed basis
- Work in coffee shops that offer free Wi-Fi
- Use a personal computer they already own
- Outsource any printing to a local print shop
If necessary, business owners can even meet clients in coffee shops -- thus limiting the startup costs to little more than a website and a few lattes. (Any printing costs can be paid after a client has made a deposit for a project.)
What are the ongoing expenses for an advertising agency?
The ongoing expenses for an advertising agency include rent for an office (if the agency has one), computer costs, internet access fees and employees’ salaries. Employees’ salaries are typically the largest ongoing expense for an agency.
Who is the target market?
Advertising agency's clients are most often other businesses, corporations or non-profit organizations. A particular agency’s ideal client will be one that is within an agency’s marketing niche and needs ongoing work. Often, such a client will ask to place an agency on retainer. (A retainer is an arrangement where a client pays an agency a consistent amount each week or month and, in exchange, the agency sets aside a certain number of hours each period to work on the client’s campaigns.)
How does an advertising agency make money?
An advertising agency makes money by charging clients for creating and planning advertising campaigns. In most situations, an agency will pitch a potential client without being compensated. If the client likes the pitch, the agency is contracted to execute their proposed campaign.
How much can you charge customers?
Advertising agencies often charge clients either an hourly fee or a commission. According to Two Hats Consulting & Web Design Services, hourly fees are typically calculated by dividing the annual salary of the person (or people) who will work on a project by 1,500 (the number of billable hours a typical person might work in a year). Commissions are traditionally 15 percent of all media and production charges.
How much profit can an advertising agency make?
As mentioned above, advertising agencies can bring in billions of dollars annually, but most have much lower annual revenues. Many agencies bring in tens or hundreds of thousands annually, depending on their niche and distinctives. It’s not unheard of to achieve millions in annual revenue, though.
How can you make your business more profitable?
An advertising agency can increase its profitability by offering services in addition to traditional marketing. For example, an agency might provide clients with public relations or social media consulting services if either of these are needed.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Advertising Agency Name Generator
If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your advertising agency is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Learn how to get an EIN in our What is an EIN guide or find your existing EIN using our EIN lookup guide.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
- LLC Taxes
- Sole Proprietorship vs LLC
- LLC vs Corporation
- LLC vs S Corp
- How to Start an S Corp
- S Corp vs C Corp
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
Besides being a requirement when applying for business loans, opening a business bank account:
- Separates your personal assets from your company's assets, which is necessary for personal asset protection.
- Makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.
Open net 30 accounts
Net 30 accounts are used to establish and build business credit as well as increase business cash flow. With a net 30 account, businesses buy goods and repay the full balance within a 30-day term.
NetMany net 30 credit vendors report to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our best net 30 vendors, guide and start building business credit.
Get a business credit card
Getting a business credit card helps you:
- Separate personal and business expenses by putting your business' expenses all in one place.
- Build your company's credit history, which can be useful to raise money later on.
Recommended: Apply for an easy approval business credit card from Divvy and build your business credit quickly.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
Known as “truth-in-advertising” laws, these regulations protect consumers by requiring advertisers to be truthful about their products and to be able to substantiate their claims. All businesses must comply with advertising and marketing laws, and failure to do so could result in costly lawsuits and civil penalties.
The Federal Trade Commission (FTC) is the main federal agency that enforces advertising laws and regulations.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate an ad agency. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
In business where services are provided on an extended basis, a services contract is often put in place outlining terms and conditions of service. You may wish to require clients to sign a services agreement before starting a new project. This agreement clarifies client expectations and minimizes risk of legal disputes by setting out payment terms and conditions, and service level expectations. Here is an example of one such services contract.
Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your advertisement business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
Certificate of Occupancy
An advertising agency is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease office space:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to an advertising agency.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build office space:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for you business’ location to ensure your advertising agency will be in compliance and able to obtain a CO.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
Recommended: Learn what business insurance for your Advertising Agency will cost.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
Recommended: Get a logo using Truic's free logo Generator no email or sign up required, or use a Premium Logo Maker.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market an advertising agency
Where an advertising agency should place advertisements depends on the types of clients it hopes to attract. For instance, an agency that targets local businesses may want to place advertisements in the area’s newspapers and join the town’s chamber of commerce. In contrast, an agency that focuses on marketing online may be better off using pay-per-click campaigns online.
How to keep customers coming back
An advertising agency can set itself apart from others by winning awards for campaigns it completes. There are many groups that offer awards for various advertising projects. Hermes Creative Awards, Ad Age’s Small Agency Awards, Marcom Awards and Clio Awards are just a few organizations that offer advertising awards.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
Recommended: Get started today using our recommended website builder or check out our review of the Best Website Builders.
Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2023 to find the best phone service for your small business.
Recommended Business Phone Service: Phone.com
Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
Start a Advertising Agency in your State
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
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Is this Business Right For You?
People who are both creative and have a mind for business may be well-suited for running an advertising agency. Creating pitches for clients requires great creativity, but this must be balanced with a business sense that considers the agency’s financial viability.
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What happens during a typical day at an advertising agency?
An advertising agency owner is responsible for managing their agency, finding clients and producing campaigns for clients. On any given day, a business owner might:
- Search for leads or follow up with leads on potential new clients
- Prepare pitches for prospective clients
- Work on campaigns for clients
- Present pitches or completed projects to clients in meetings
- Manage employees
The work of preparing pitches, designing campaigns and meeting with clients is often done with other business partners or employees. Even after an agency grows, however, business owners usually remain involved in these activities.
What are some skills and experiences that will help you build a successful advertising agency?
In order to successfully run an advertising agency, business owners must have knowledge about advertising. It helps to have a degree in marketing or a related field. Business owners who don’t have a four-year degree in the field should at least consider taking some classes and reading publications on the industry. The American Association of Advertising Agencies offers several training programs. Inc.com has a list of 16 trade publications and high-quality blogs. MarketingProfs, Business Insider and The Knowledge Bank lead the list.
What is the growth potential for an advertising agency?
Advertising agencies can grow to be internationally recognized companies that receive accolades and land clients from all over the world. Advertising Age published the estimated 2014 revenues of the world’s five largest advertising agencies:
- WPP Group (in London) had an estimated annual revenue of $19 billion
- Omnicom Group (in New York) had an estimated annual revenue of $15.3 billion
- Publicis Groupe (in Paris) had an estimated annual revenue of $9.6 billion
- Interpublic Group (in New York) had an estimated annual revenue of $7.5 billion
- Dentsu (in Tokyo) had an estimated annual revenue of $6.0 billion
In many cases, agencies are able to become national or multinational businesses with offices in just one or a few cities because they offer services rather than physical products.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting an advertising agency?
While it may be tempting to take on any clients who offer work when first starting out, it’s important to remain selective about what clients an agency takes on. Phyllis Dealy, who started her own agency, explains that it’s important to remain true to an agency’s vision by only taking on clients who fit within that vision.
How and when to build a team
An advertising agency should hire a few employees as quickly as possible, but it’s important to resist growing beyond the initial team too quickly. Agencies should first have at least one creative person, someone with a business mind and a person who can manage the daily tasks of making a business run. Dealy stresses the importance of a behind-the-scenes person who can take care of billing, operations, staff issues and similar tasks so that the creative person can focus on planning campaigns. After these people have been hired, Dealy says, additional creative people should be slowly brought on as needed.
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- American Association of Advertising Agencies
- Agency Management Institute, helps small/medium ad agencies grow
Real World Examples
- Article about what it’s like starting an ad agency
- Testimonial about starting a successful ad agency
- Example of successful ad agency