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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.
Who is this business right for?
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.
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 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.
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.
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 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 steps to start an advertising agency?
Once you're ready to start your advertising agency, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your advertising agency is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your advertising agency keeps your finances organized and makes your business appear more professional to your customers.
- 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.
- 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.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- 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.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I 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.
Recommended: Fizzle.co offers video courses and a supportive online community of like-minded entrepreneurs. Try one month membership for for free.
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 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.
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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.
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.
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, check out our informative guide, Sales Tax for Small Businesses.
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.
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.
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.
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.