How to Start an Advertising Agency

Part 1 - How to start an Advertising Agency business - Background

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.

Our guide is in 3 parts:

• Part 1 - How to start an Ad Agency business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

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.

Day-to-Day and Growth

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.

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.

Part 2 - Is an Advertising Agency business the right fit for you?

Part 3 - Action plan to launch your Advertising Agency business in 90 days