Starting a Digital Marketing Agency in 4 Steps
No matter the business or industry, there’s always going to be a need for companies to market themselves to new and existing clients. The proliferation of digital marketing tools has made it easier for businesses and entrepreneurs to try their hand at developing effective marketing campaigns. Perhaps paradoxically, however, this same phenomenon has made it harder for businesses to market themselves well. This is where it pays to start a digital marketing agency, as you can help businesses make smarter decisions about how they get the word out online.
When looking to start a business in the digital marketing industry, there are a few must-do items that every new business has to cross off the list. Filing forms, understanding taxes, and registering with government bodies are just the first steps. But there are also industry-specific considerations that may end up saving you time (and frustration) if you know what to look for.
If you think you’re ready to start a digital marketing agency of your own, here’s what you need to know before you get started—as well as what to look out for.
1. Develop a Business Plan
Starting a company without a business plan is kind of like building a house without a blueprint. Sure, it might stand up and function fine, but you’re likely to make tons of costly mistakes and encounter foundational problems in the future. If you start a digital marketing agency without a clear idea of your market, financial requirements, competitive landscape, and the tactics you’ll use to set yourself apart, you’re going to have a lot to figure out along the way. That’s time you could be spending on generating leads or working on client projects.
A good business plan should address a few core components of what you want your digital marketing agency to look like. This includes financials, prospective clients, industries served, and the current competition. These details are important to write down early into your company’s existence, as doing so can help you stay oriented during the challenging first months (and years) when your efforts are focused on finding clients and turning a profit.
You’ll also want to think about areas of expertise in which you’d like to focus. Marketing agencies can’t cover every sector, even if the financial benefits of doing so would be enormous. If you have prior experience in an industry, consider tailoring your services to this area before branching out. Your business plan should go into detail about where you’d focus your lead generation efforts, and your targeting can always expand as your business takes off.
And while we’re on the topic of modifying your business plan, consider updating the document as time goes by. Your business financials are certain to change after you launch, as well as your competition and areas of expertise. An iterative business plan helps keep you organized, focused, and honest about what your business really is. There are also business plan templates out there that can help demystify the process of putting one together. If you end up looking for small business financing, your lending partner will likely want to see a solid business plan before approving your loan application as well.
2. Register Your Business
Once you have a business plan in tow, you’re ready to embark on the groundwork required to get your company officially organized and recognized by local, state, and federal agencies. Registering a digital marketing agency is typically straightforward: Your business won’t have to collect sales tax, and you are less likely to have to get special licenses in order to run this kind of company. This means less paperwork for you and more bandwidth to get started quickly.
Before you apply for local and state registration, be sure to get an employer identification number, or EIN for short. EINs function as a kind of social security number, but for your business rather than yourself. This identifier gives the IRS a method of tracking your federal business tax returns and often serves as an identifier for state taxation bodies as well. Most lenders want to know your EIN when you apply for a business bank account or loan. You may also want to have an EIN to put on W-9 forms so you don’t have to enter your own social security number instead.
Pick a Business Entity
A business entity determines several core operational components of your company. Each entity offers different advantages depending on the kind of business and its needs. There are informal entities that do not require any kind of registration and allow entrepreneurs to pay their business taxes directly through their own personal tax returns. Other entities are more formal, but provide more distance between personal and business finances. Plus, each business entity also offers varying amounts of liability protection in the event that a business goes bust, gets sued, or encounters any number of legal and financial issues.
A sole proprietorship offers the simplest option for getting a digital marketing agency up and running. With a sole proprietorship, an individual can operate a business without the need for formalized registration in many states, or a very limited amount in paperwork at most. Business earnings and expenses are accounted for in your personal tax returns, which may make life easier for newcomers to small business ownership.
On the other hand, sole proprietorships are considered “disregarded entities,” meaning that there is no legal distinction between yourself as an individual and your business. You’ll be personally liable if your business runs out of money, can’t pay its debts, or gets sued. That can pose its own set of challenges, as you’ll be personally exposed should anything go wrong with your agency.
Other business entities, such as limited liability companies (LLCs), offer many of the same simplified tax rules that sole proprietorships have, but with increased liability protection if something were to go awry. There’s a wide variety of LLCs to choose from: single-member LLCs function much like sole proprietorships, but make a clearer distinction between an individual’s personal assets and those of his or her business. Similarly, general partnership LLCs do much of the same, but for two or more individuals. Other LLCs are more complicated and are designed for larger businesses, but also allow owners to file separate tax returns that are independent from their own personal finances.
You may also choose to incorporate your agency or opt for another business entity that makes more sense for your business. We recommend consulting with a lawyer or tax professional at this stage to help you make the best choice for you. Once you choose the entity you want, you’ll register it with the state where you’ll be operating. This can typically be done through your secretary of state or chamber of commerce online portal.
Secure Licenses (as Necessary)
Marketing agencies don’t tend to need many business licenses or permits in order to operate legally. You won’t be collecting sales tax, and won’t typically need to have special permits to do your work (as you would if you ran a restaurant or home improvement business). You may need to secure home office licenses or permits depending on where you live and, of course, if you work from home.
Other marketing industry-specific licenses tend to be rare, but are not completely unheard of. Some local and state governments require businesses to have a license in order to advertise, for instance. Be sure to double-check your local and state laws to make sure you’re fully registered and legally allowed to work, as many rules change from one state to the next.
3. Get Insured
Every small business benefits from being insured. Not every business needs the same kind of insurance, however. Digital marketing agencies are relatively low-risk businesses from an insurance perspective. There is less chance of a job-site accident than you’d find with a plumbing or electrician business, and fewer chances that a client’s property or belongings might get damaged than you’d find at a repair shop. This means your insurance policy, and premiums, don’t have to be a major expense.
If you’re unsure of what insurance your digital marketing agency might need, start with a general liability plan. General liability insurance protects your business from issues that arise in the normal course of operations. This includes (but is not limited to) non-employee injuries at your place of business, property damage, and advertising injury. In case you’re not familiar with advertising injury, this covers any incidents of libel, slander, or harm done due to your business’s advertising efforts. This does not necessarily include ad campaigns conducted on behalf of your clients, however, so be sure to talk to an insurance professional to determine your coverage.
If you’re hiring employees, you’re going to need workers compensation insurance. These plans cover basic costs and liabilities due to on-the-job injuries. Should any unforeseen accidents happen during the course of regular business, you’ll be glad you have a plan to help you cover medical costs and other injury-related expenses.
4. Explore Business Financing Options
Starting a business isn’t cheap. Digital marketing agencies may have less overhead than other businesses, but that doesn’t mean there are no expenses to consider. Renting an office gives you the space (and sense of establishment) that can help your business take off, and funding your advertising efforts can cost a significant amount of money. These are only two of the many reasons why taking out a loan to get your company going may be the right financial move.
There are several kinds of small business loans for digital marketing agencies. Some provide low interest rates and generous repayment periods, while others have fast approval timelines or can open up a conduit for getting cash when you need it on an ongoing basis. Here are some of the most popular loan options for digital marketing agencies.
Among the most coveted small business financing options around are SBA loans. They provide large sums of cash at low interest rates with long repayment periods, which can help small businesses afford to borrow money without paying a fortune in interest over a short period of time.
SBA loans aren’t issued by the Small Business Administration (SBA), despite what the name might suggest. Instead, the SBA partners with banks to offer loans with small business-friendly terms that may not otherwise be extended to smaller enterprises. The SBA guarantees up to 85% of the loan’s total, which gives the bank enough confidence to lend to entrepreneurs.
The favorable terms that come along with SBA loans mean that getting one can be a challenge. The sheer popularity of the program means that only the strongest applicants get approved. A sturdy personal and business credit history is a plus, and prior experience in the small business arena doesn’t hurt either.
Business Term Loans
If you don’t get the SBA loan you were after, or determined that the paperwork involved in the application was too time-consuming to consider, then a business term loan might be the better option for you. Business term loans are the kind of financing that you typically think of when it comes to bank loans. Borrowers request a certain amount of money and, if approved, get the funding they need in exchange for full repayment plus interest.
The SBA guarantee helps reduce the risk of a bank loan going bust, which makes financial institutions less picky about who they lend to. Business term loans don’t come with this guarantee, however, so many conventional lenders are more reluctant to approve small business term loan applications. If you want to consider a business term loan, make sure you’ve got a robust history of running a successful business, immaculate bookkeeping, and a rock-solid business plan.
Business Line of Credit
Sometimes businesses need access to cash on a rolling basis, rather than a lump-sum payment. That’s where a business line of credit can be a fantastic option. Instead of receiving a one-time loan amount in full, a business line of credit lets borrowers take money out of a set amount of cash that the lender is willing to offer. Interest is only paid on the outstanding loan balance, and borrowers can pull from their line of credit as often as they like during the term of the loan.
A business line of credit is similar to a business credit card in many respects. Making incremental charges on a credit card means your issuer is giving you a loan from a larger cash reserve. You only pay interest on the balance you carry, and you can pull from this reserve repeatedly. With a business line of credit, however, you’re more likely to be able to pull larger amounts of cash out during the course of the loan. The line of credit may also come with a lower interest rate, making it more affordable to borrow as needed.
The Bottom Line
If you have a knack for storytelling and know how to get people’s attention online, a digital marketing agency might be the right business to start. The cost of entry is relatively low, services are in high demand, and overhead is usually low. All you need in order to get started is a computer, a phone, and a couple of leads to get your business off the ground. The right business plan, entity registration, and financing will make it easier to set up your business—making all of your preparation worth it as your agency soars.
Brian O’Connor is a small business owner and contributing writer for JustBusiness.
Brian is the former director of digital strategy at Morgan Stanley, has worked at Foreign Affairs magazine, Student Loan Hero, and is a partner of a small consulting firm. Combined, these experiences allow him to offer a unique perspective on the challenges small business owners face. Brian writes about finance, business strategy, and digital marketing for JustBusiness.