Start an advertising agency by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your advertising agency. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
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 long it will take you to break even?
- 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 very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your advertising agency is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, and it's easy enough to form by yourself, or check out the top business formation services.
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?.
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.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: You can get $200 when you open a Chase business checking account with qualifying activities. Learn more.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
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.
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.
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
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
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.
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.
STEP 9: Establish your 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.
Start An Advertising Agency In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
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.
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.
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.