This post is part of Hubstaff’s freelancing month 2017, where we feature insights by experienced freelancers about how they get clients, manage their workload, and more. Be sure to check out the rest of our freelancing month posts when you’re done with this one!
After conquering the freelancing world, you may be ready to move on to the next logical step: starting a creative agency.
But working as a freelancer and running an agency are two very different things.
As a freelancer, you choose the clients you want to work with (and avoid the really bad ones). You make your own schedule. You make only as much as you need to make. If you decide to phone it in one month and accept less work than usual, you’re the only one impacted.
But to operate an agency, you need more clients. To take on additional clients, you need more people. Those people may leave their full-time jobs to work for you. They may have families to support.
Owning an agency means you’re responsible for more than just your own stability and future. The decisions you make will impact everyone you hire.
Starting a creative agency is a big decision. Before you take the plunge, there are several things you need to know, and many decisions you need to make.
This step-by-step guide will help you determine if launching an agency is right for you. It will help you earn more about the transition process, make the important decisions, and read helpful advice from others who’ve grown successful agencies from scratch.
Let’s get started!
What is a creative agency?
First, it’s important to understand the difference between being a freelancer and running an agency. There are a variety of ways that “agency” is defined.
There’s the legal definition:
A consensual relationship created by contract or by law where one party, the principal, grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party. An agency relationship is fiduciary in nature, and the actions and words of an agent exchanged a third party bind the principal.
And there’s the traditional definition:
[often with adjective or noun modifier] A business or organization providing a particular service on behalf of another business, person, or group. [as modifier] ‘an advertising agency’
Finally, there’s a modern definition:
An agency is defined as a group of excellent people collaborating around a difficult challenge and finding solutions that drive our clients’ business.
– Andrew Bailey, CEO of The&Partnership
The first two definitions could easily describe freelancing. You provide services to another business, typically under a contractual agreement.
But the third definition emphasizes the one big difference between freelancing and running an agency: an agency is not a one-person business. It requires multiple people.
A creative agency is a business, composed of multiple people, that provides creative services to other businesses. Offerings can be limited to a single service, or they can include a variety of services. Creative agencies often provide consulting in marketing, advertising, design, SEO, and/or technical fields.
While the day-to-day work may vary depending on your agency’s specialization, the process of starting an agency in any of these disciplines is essentially the same.
Step 1: Determine the services your agency will offer
Before you can launch a creative agency, you need to decide what services you’ll offer. You should also decide what types of businesses and industries you want to serve.
A simple place to start is to offer the same service you provided as a freelancer. Begin by focusing on your area of expertise, and broaden your offerings over time as you grow revenue.
- If you’re a freelance writer, you may want to launch a content marketing agency.
- A designer may want to start a design agency.
- A developer may want to start a web development agency.
- Or you could start a full-service digital agency that provides all of these services.
It’s not a requirement for agencies to offer a wide range of services. Many specialize in one specific service, like search engine optimization (SEO), content marketing, or website development.
If you decide to go with this option, it helps to form a referral partnership with other related (but not competitive) agencies.
Daniel Rizer, Creative Director at Catapult Creative, says one of the early mistakes his agency made was hiring in-house instead of building a professional network:
What partnerships with other agencies brings to the table . . . is something that an employee or freelancer has little incentive to. That is to bring new work to you. Even if it’s something you’re capable of doing in house, sending someone else a lead who does it better than you will put you on their radar, who in turn will find a reason to send work to you.
If you’re planning to offer a single service, take time to think about the types of related services clients might request. Then, find agencies that specialize in those ancillary services, and refer work to them. Since those agencies also specialize, they may in turn refer work to you.
For more ideas, check out how these six social media agencies get clients, and apply those lessons in your own business.
Step 2: Decide if you want to focus on a niche
Choosing whether or not to focus on a niche is another important early decision to make. You could be a generalist agency, providing services to business-to-business (B2B) and business-to-consumer (B2C) companies of all sizes in all industries. But you may be better served to specialize in a niche.
Kyle Racki, CEO at Proposify, asserts that choosing a niche creates a unique value proposition for new agencies:
Too many design and marketing agencies have no clear value proposition beyond ‘we do good work’ and they don’t target any particular industry or serve a vertical market, believing they should work for any business that wants to hire them. Don’t make that mistake. The way to get good clients who pay top rates is to target a specific niche so that you don’t have to compete as a generalist.
Choosing a niche isn’t required, but it offers several benefits:
- It creates instant authority. Having a specialization helps build trust and credibility with potential clients. If you only build websites for hotels, you’re obviously familiar with the ins and out of the travel and tourism industry.
- It minimizes learning curves. If you have to get to know a new business or industry every time you take on a client, you’ll spend a lot more time and money on training and education to get yourself and your staff ramped up.
- It serves as a differentiator. If a prospect is considering ten agencies—nine generalist agencies and one niche agency—the agency that specializes in their industry will naturally stand out.
If you’re going to specialize in a niche, it’s important to do some research up front. Make sure there’s enough demand in that industry for the services you provide, and ensure that the demand will be sustained so you can grow your agency over time.
Step 3: Choose a location for your agency headquarters
In the US, many business laws are enforced at the state level, so decide early where your agency will be headquartered.
Before you can make that decision, you need to decide if you want to have a physical office for your agency. Many agencies today operate entirely remotely, visiting clients’ offices when in-person meetings are required. If that’s the case, your agency will be governed by your state of residence.
But make sure to consider all options thoroughly. Proposify’s Kyle Racki believes that a physical office is important for credibility:
If you want to be taken seriously by those big paying clients you’re hoping to persuade, they want to know you are a legitimate firm and not a fly-by-night operation running out of your basement… Inviting a prospective client into your studio impresses them, and even though they should be hiring you for your capabilities, a slick workspace can help you stand out in their mind as an established firm.
Racki also cautions that employees will not appreciate being asked to work in an office after being hired to work remotely, so the decision needs to be made upfront. At the very least, you need to clearly communicate with new hires if there’s potential for a future requirement to work in an office.
Step 4: Name your agency
Choosing the right name for your agency is critical—it will become the basis for all future branding. It’s also complicated. You need to consider trademarks, domain availability, and long-term suitability.
Paul Venables, founder of Venables Bell & Partners, recommends keeping things simple and just using your own name:
The better reason to name your agency after real humans is a marketing one. Everything you do, every tweet you make… every panel you sit on immediately gives credit back to the agency. It doesn’t require two connections. You are a brand. Your agency is a brand. Makes life easier (especially in the beginning) when they’re one and the same.
Whether you decide to go with your own name or not, there are a few other things to consider before naming your agency:
- Existing trademarks. Business names can be trademarked, and trademark infringement comes with hefty legal fees and penalties. Before settling on a name, make sure it’s not trademarked by searching the Trademark Electronic Search System.
- Incorporation. At some point, you’ll likely want to incorporate your business. The state where your business is located won’t allow you to incorporate a business name that’s already in use. It’s good to contact your state filing office to find out if your proposed name is available.
- Online branding. At a minimum, you’ll want to make sure that you can purchase a domain name that uses your business name. But you may also want to check availability of the name on any social channels you plan to use. Consistency across digital channels is crucial for branding.
- Long-term goals. Don’t choose a name that’s limiting. If you name your business “Content Marketing Agency,” it won’t make sense when you expand offerings. Think about what you’ll be doing several years down the line.
Trademarks and incorporation are specific to US agencies. If you’re launching an agency from another country, it’s important to review the laws and regulations in your country—or speak with a business lawyer before making decisions.
Step 5: Decide on your creative agency structure, and start hiring
Next, you must decide what positions you need—and can afford—to fill. This depends somewhat on your own strengths and weaknesses, as well as the services you plan to offer.
A good place to start is to detail out all of the activities you currently conduct as a freelancer. When scaled, what will you be unable to handle on your own?
- General workload? Hire someone to help execute tasks related to the services you’re offering.
- Finding clients? Hire an account representative or salesperson.
- Technical requirements? Look for a technical co-founder.
- Managing staff? Hire a partner, CEO, or other leadership member.
- Running the business? Hire an accountant, business lawyer, or virtual assistant.
Regardless of which positions you determine you’ll need to fill, you need to make sure to complete two important tasks upfront: choose a leader, and create an org chart.
James Bull, Co-Founder at Moving Brands, believes that his agency’s early decision to elect a leader was an important factor in its growth:
Even between friends you need to choose a leader. You will have multiple ideas and different opinions, and I’ve learned that going in a direction is much more important than arguing about the direction… Having a leader to make the call on behalf of the team, sometimes without any discussion, really helped propel Moving Brands forward in a way that we didn’t witness in our peers.
Ian Lurie, CEO of Portent, says it’s important to create an org chart as soon as you make your first hire:
Foster organizational clarity. As soon as you hire one person, you’re going to end up with conflicts. You won’t agree on stuff. Companies live or die on their ability make decisions. That requires that everyone knows their job, who their boss is, and the sense of mission for the company… Create an org chart with your first hire. Update it as necessary.
After you’ve decided what roles need to be filled, you need to decide what type of employment you want to offer. Do you want to hire people full-time, part-time, or freelance? Each has its own set of benefits and disadvantages.
- Full/part-time. The advantage of hiring staff is you get their assistance for a set number of hours each week. The disadvantage is you pay a salary whether there’s work to be completed or not, and you will also be responsible for additional costs related to employment taxes and any employer-sponsored benefits.
- Freelance. The advantage of hiring freelancers is you only pay for work that’s completed, which is ideal when you’re just starting out and have limited funds. The disadvantage is that freelancers may find higher-paying work or get offered a full-time job elsewhere, leaving you with little notice and client work that needs to be completed on deadline.
It’s probably worth your time to spend some of your budget upfront on either a freelance human resources specialist who’s versed in employment law, or pay for consultations with a business lawyer or accountant.
Every country has different laws and regulations surrounding hiring, taxes, and employment, and the consequences of making mistakes in this area can lead to a quick end for your agency.
Step 6: Establishing your creative agency fee structure
There are three major fee structures that agencies use to bill clients: hourly, per-project, and retainer. Hourly and per-project agreements were likely payment models you used as a freelancer, but retainers are usually the preferred model for agencies.
Retainers are essentially subscriptions to agency services. In exchange for a flat rate each month, the agency provides the client with an established set of services, number of creative artifacts, hours of consultation, and any other agreed elements. The client pays the rate whether or not services are needed in exchange for securing an amount of the agency’s time.
There are multiple benefits to working on retainer:
- Retainers grow revenue exponentially over time. If your retainer is $500 per month, each new client you add will increase your monthly revenue by $500, allowing you to grow your agency with new client business.
- Retainers establish a more secure revenue flow. If you’re selling services per project, the next set of revenues—and employee salaries—will be dependent on finding new projects. With retainers, you can plan ahead. You’ll have a better sense of when you need—and can afford—to hire new employees.
- Retainers establish a more diverse client base. It’s risky to focus the majority of your efforts on a single client. With retainers, you can diversify your revenue streams, minimizing the amount of loss and risk if a client decides to end the relationship.
Initially, you may need to take work just to keep revenue coming in, but over time, you should work toward a retainer-only model.
When establishing a fee structure for retainers, it’s important to create various options for clients to choose from. Entrepreneur John Rampton suggests that offering a wide range of services and do-it-yourself packages are ideal for agencies that are just getting started:
Particularly when you’re just starting out, having a wide range of services is imperative. You’ll find some clients want to be very hands-on, and just need a little guidance… You may even want to create DIY packages so small businesses can take advantage of your expertise without a huge financial risk.
Here are some great resources on determining your agency fees:
- How to Calculate Your Agency’s Fee Structure
- 2 Types of Consulting Retainers and How to Use Them Effectively
- How to Sell Your Clients on A Monthly Retainer
Step 7: Select and onboard new clients
With an official agency name, a detailed payment model, and new hires that enable expanding your services, you’re ready to begin onboarding new clients.
In the beginning, it can be tempting to say yes to every opportunity, but it’s important to consider new clients and opportunities carefully.
In an article for Digiday, Phyllis Dealy—founder and CEO of Reinvent the World—tells the story of turning down an early retainer offer when working for agency Woods, Witt, Dealy & Sons:
Right after we started, the very first guy who offered us a retainer—and we needed it so badly—we ended up telling him we didn’t want to work with him because we knew that his values and our values didn’t line up. That was a defining moment for us as an agency: to walk away from business because that wasn’t the right business for us.
Before onboarding a new client, it’s crucial to determine if the working relationship will be a good fit for both parties. Otherwise, you run the risk of forming long-term relationships that lower your morale, stress your staff, and fail to impress clients.
Catapult Creative’s Daniel Rizer also recommends considering clients and opportunities carefully before agreeing to write proposals:
Writing proposals takes a long time. The bigger the proposal the more research it takes… When deciding which proposals you want to invest huge amounts of time in it’s best to use your instincts to determine if you really are the best fit for the work proposed.
Consider new work and new clients carefully. The more time you devote to making sure a client and a project are a good fit for your values, culture, skills, and capacity, the more likely you’ll be to succeed in starting and growing your agency.
Is a career as an agency founder right for you?
David Droga, founder of Droga5, offers this advice for aspiring agency owners:
You have to be optimistic—optimism gets you halfway there, and then, of course, you have to work your ass off and be brave enough to have an opinion about what you are doing, because the world isn’t looking for another agency—it’s looking for good ones.
It’s certainly possible to take the next step and turn your freelancing career into a thriving creative agency.
But remember that your success—and the livelihood of anyone you hire to take the journey with you—will only be dependent in part on your passion. The rest requires a detailed plan.
Kean Graham, founder of MonetizeMore, was successful from going from AdSense and ad server consultant to building a full-fledged location independent agency. Now they boast some of the most sophisticated ad optimization technology on the planet. You can learn more via his podcast interview.
Do you have experience turning a freelancing career into a successful creative agency? If so, we’d love to hear your advice in the comments below.