Are you struggling to understand why your hard work and effort as a marketing and advertising agency isn't translating into a profitable business? You're not alone. But with the right metrics, process analysis, and diagnosis, any agency can make better decisions and improve their results. Increasing profits should be a primary financial concern for all businesses, including marketing agencies. According to industry benchmarking data, marketing agencies typically have a net profit margin between 6.0% and 12.0%.
That means there's plenty of room for growth. For the agencies we work with, the goal is generally a net margin of 15.0%. Any company that wants to become profitable can reap the benefits of digital marketing over time. Agencies need to have a profit margin to invest in both soft and hard skills in order to remain competitive within their market sector and open up opportunities for development in other areas.
If you rely primarily on contractors or outsourced partners to work for clients, you may not have to worry as much about utilization since you don't pay those contractors when the agency isn't busy. It's important to track profitability, but it's also beneficial to track profitability by customer and service. With time and effort, marketing agencies will see results based on their hard work. Deepening agency specialization is another concept to consider when it comes to profitability. Traditional agency models may be absent in certain fields, which means they need to hire freelancers or external collaborators.
We did an in-depth analysis of this topic and created a profitability guide for agencies that you can consult here. Having good cash flow, efficient systems, simple but clear numbers, and visibility into your progress can make managing your agency much easier and more enjoyable for both you and your team. The first step when you want to create an advertising agency is to conduct research to determine what is right for you. For more information and to avoid common mistakes in this area, you can refer to my guide on how to choose the right structure for your estimates and actual data. When it comes to pricing services offered by digital marketing agencies, rather than charging clients based on the duration of their projects, it's best to have value-based pricing. Now that you have everything you need to create an advertising agency, it's time to find clients and expand the business.