Businesses, even big ones, don’t seem to know how much to pay for digital marketing services and most of the guides out there make suggestions based on current market trends. This guide is different. It will give you insights into the actual costs of running a marketing agency and then extrapolate from there, giving you an idea of what you need to pay based on what kind of results you can expect at different levels.
We actually won’t start with agencies, but with freelancers found on places like Upwork or Fiverr, which can be an OK fit for startups or small businesses. If you’re looking for information on agencies, skip down to the How Much Should I Pay an Agency section.
How Much Should I Pay a Freelancer?
The problem most businesses have is they start with thinking how much they want to pay. This is the absolute wrong way to look at it. Businesses need to decide what results they’re looking for, then determine what they can afford, and make a reasoned decision from there. There will certainly need to be a compromise on either price or quality, but that’s the challenge of new and small business.
Also, a very important point, freelance aggregator sites like Upwork and Fiverr take 20% of the freelancer’s earned income. So if you pay them $10, they only make $8. On top of that, being self-employed, they pay the standard “double tax” in the US of 30% for the self-employed. So of that $8, they only make $5.60 an hour.
So right there is your starting point. You pay for what you get. Do you think anyone that is experienced and can deliver results will work for less than minimum wage? Of course not. The only way that would happen is if they’re brand new to the platform and need to build a reputation. So you’d need to get incredibly lucky that they are somehow both brand new and actually good at what they do.
That’s almost never the case. They’re usually brand new both to the platform and to freelancing in general and probably to the field they tell you they are an “expert” in. Because, of course, no real expert is going to sell themselves cheap. It’s only the newbies without results that will offer services for cheap. And, just a word of caution, if you see ninjas, gurus, or wizards in their title, you can be absolutely certain that they are not very good at what they do.
Even on the agency side, if we get a form submission on our website with a company asking for a “digital marketing ninja,” we know right away that it’s not a serious company, probably pre-revenue with no budget.
If you’re looking for real talent, be prepared to pay based on some of the benchmarks below.
As a digital marketing agency, if you’re trying to hire experienced staff that have a track record of getting results, you pay $25 an hour plus benefits. So when you factor in payroll tax and benefits, you’re looking at about $32 an hour.
So, if they’re freelancing and getting the 20% gouge from the site on top of the 30% self-employment tax on their earnings, they’re going to need to charge around $45 an hour just to make the same wage as they could at an employer who provides them with a stable paycheck. If you’re not paying at least $45 an hour to your freelancer, you can be assured they do not have experience working with large budgets or getting results.
A Word of Warning:
All of the below will pertain to freelancers with skill sets in their specified area. Except for the experts in the $50 or above range, they will not be able to do anything for you unless you already have a working funnel or validated lead and sales gen system in place.
If you do not have those, you will need to pay someone to build one or pay freelancers to constantly test things out. The best marketing in the world does nothing for you if you don’t have landing pages or email sequences that convert, for example. In addition, if live interaction is required to close a sale, great marketing cannot make up for a bad sales team.
Freelancer Wage Breakdowns Are Generally As Follows:
$15 an hour and under
This is a brand new freelancer with no experience. If they’re not foreign with questionable English, they’ve certainly never handled an ad spend of more than $250 a month, much less have business-building experience that would be needed to help a startup develop a strategic marketing approach and grow.
At this level, they are basically the same as a virtual assistant and could be used to simply schedule out organic posts on social media platforms, which is a complete waste of time and will not deliver ROI. If you think making a bunch of free posts on social media will somehow help you grow your business, get ready to make some expensive mistakes in wasted labor hours.
$15-$25 an hour
These freelancers have possibly worked in the field, maybe as an intern or low-level coordinator before, or they have built up some experience with other clients. They have likely never handled an ad spend of more than $500 a month and are unlikely to have delivered serious ROI (remember, if a digital marketer can deliver 3X or more on ad spend consistently, they know their value and will charge appropriately. Nobody that delivers results consistently and is earning your business a 300% ROI or more is going to do so for a $10-$18 an hour after-tax wage with no benefits).
These freelancers may be good at one thing, like really familiar with Instagram, Twitter, or Blogging, but will usually not have a broad range of skills to build out a comprehensive strategy. These freelancers are also most likely to be using a junk platform like Clickfunnels, since it can automate away some of the skills they don’t have to create a working funnel on normal owned digital assets (website, email lists, and CRM). If someone is using Clickfunnels, it’s usually a clear sign they are not very experienced. With that said, we have come across a small handful of people that do use it really well to fill in gaps for skill sets they don’t have, like building a landing page or integrating APIs.
$25-$50 an hour
Now you’re starting to get into the more experienced crowd. These freelancers are often sort of a sweet spot as they probably have some skills and experience delivering results, but are new to the platform or to freelancing in general. They will start charging more soon as they know they’re worth more, but will begin with a lower hourly rate because they need to build up a reputation.
They have probably worked with ad spends of $1,000-$5,000 a month.
Some at this level are maybe good at the mechanics and very task-oriented. They know how to go in and optimize a campaign, but may not have the broader understanding of how to build campaigns from scratch or to integrate a comprehensive, strategic plan across channels and tools.
The task-oriented freelancer can be good for companies who have already validated campaigns and pre-built funnels, but just think they could get better results with more of a specialist. They are not a good fit for companies starting from scratch or who do not have a working funnel in place.
$50-$100 an hour
These freelancers are great at what they do and can deliver consistent results within a specific skill set. As discussed, graphic design, content writing, web dev, and digital campaign management are all separate skills and take years to become an expert in any given one. So if you need someone to both write really good ad copy and someone to map out and implement strategic campaigns, you’d be looking at hiring two people at this level. If you then also want to use some of the long-form content for SEO purposes, that would be a 3rd hire.
We can tell you from experience, the creative people that might be really good at design or writing, are often awful at the numbers and analytics needed for strategy. The exact opposite is true for the analytical campaign managers, they’re usually awful at creative writing or artistic design.
This level of freelancer also usually only works with higher budgets. They will often not work with a business spending less than $5,000 a month on ads. Good digital marketers know that serious results can only come with the budgets to back them.
If they do work with less than $5,000 a month in spend, they’ll probably be very upfront with you that it will take months to get any kind of results at lower spends. For a smaller business, this is generally the tough choice that has to be made. Either invest upfront and get results churning faster or invest at a smaller level given the limits of the current budget and wait longer for results.
These freelancers also probably have at least passing knowledge of more than one aspect of digital marketing such as SEO, Adwords, Facebook Ads, and WordPress (basic management, not actual web development). Even if they don’t know how to design a graphic or build a landing page, they’ll still have an idea of what one should look like in order to get bottom-line results.
$100 or above
These really shouldn’t be classified as freelancers, but as agency owners and consultants with established track records who have extensive experience helping companies grow and scale by creating and implementing strategic marketing plans across channels and assets.
These people will either simply work on an hourly consulting basis or will be looking for a standard retainer contract for their agency. They will certainly be able to grow your business, but you’re clearly paying for that level of expertise.
One thing to note is that building a business is one of the hardest things in the world to do. Every agency would rather work with a business that’s been around for 3 or more years and has steady cash flow as well as a solid marketing budget (8-11% of bottom-line revenue is recommended).
If people existed who could walk into any random business and just build it from scratch using their marketing expertise, they’d be a billionaire out building businesses left and right, not talking to Mr. or Mrs. Startup. So always be aware that an expert is no magic bullet. You’ll still need to partner closely to put in the extremely difficult work of validating the business model and marketing strategy.
How Much Should I Pay a Digital Marketing Agency?
To understand how much you should pay an agency, you first need to understand some of the operational expenses.
First off, digital marketing can almost never work without a team. One of the biggest mistakes I see is that those who don’t understand digital marketing think that it’s a singular skill set. It’s not. Content writing, graphic design, SEO, web development, digital campaign management, and strategic planning are all vastly different skills that take years to learn.
I have yet to come across a single person that knows all of them, and that includes the higher level marketing VPs I know at companies like Google, Hewlett Packard, and Disney. A successful strategy employs a few to all of the above skill sets, which means individual hires for each.
Anyone worth their salt and that has real experience running campaigns of $5,000 a month or more, will be working on a salary of $32 an hour, or around $66,000 a year (this includes benefits and employer-paid taxes. It comes to about $50,000 a year minus benefits and taxes).
This is why many companies outsource their digital marketing. They can’t afford to hire a web developer, content writer, and digital campaign manager that will end up costing them $180,000 a year plus recruitment, management, and operational costs. It’s much more cost effective to hire out to an experienced agency that has all these people in-house, are used to working together as a team, and can switch employees with relevant skills sets on and off the project as needed.
If you want to really understand what a very basic digital marketing strategy entails, check out Digital Marketing, Do You Have What It Takes?
Understanding Basic Monthly Operational Expenses
Average office space in a small metropolitan area – minimum $800. Triple that if in LA, Chicago, or NY
All utilities, including high-speed Internet – $250
Premium Digital Marketing Tools – $500
Accounting Costs – $100 a month
HR costs – $100 a month
And these are just costs for a small agency of 10 people or less. That’s $1,750 a month.
Now, let’s add in labor. For the absolute minimum level of results, we’ve found that a team needs to spend 4-5 hours per week per platform. So 4-5 hours on Facebook, 4-5 on Twitter, 4-5 on Instagram, etc.
So, per platform, our labor cost is $512 to $640 per month.
Add in the cost of an account manager liaising with the client, and that’s usually around at least 1 hour a week. Let’s say we just pay that person $25 an hour, that’s another $100 a month.
So our total cost, just to run operations for a single client is at least $2,362 a month. That’s not even adding in any profit, that’s simply base cost to operate.
What does that mean to you as a business seeking an agency? It means that if you’re paying less than that, you’re clearly not creating a win-win situation for yourself and your agency partner. They would actually be losing money by working with you.
Or, it means that somewhere in that equation, costs are lower. Well, they’re usually not going to come from building space or utilities, so that means it’s going to come from labor or premium tools. And cheaper labor or less tools means lower quality for you.
Just like with freelancers, you pay for what you get with an agency. If you can’t afford to pay them for quality talent, then they can’t hire quality talent or they can’t put quality talent on your account.
With Circle Social, this is exactly what we’ll do with smaller accounts. Instead of putting the best staff on them, we’ll put newer staff with smaller salaries, and have them overseen by an expert staff member on a weekly basis. It allows us to keep costs down, while still maintaining quality and results. Then, as we start to deliver results and our fees increase with increasing spend, we’re able to move more expert-level staff directly onto the day-to-day of an account.
We are also incredibly fortunate to have taken advantage of some very special rent premiums and subscription prices for some of our tools, since we were grandfathered in before some of the recent price hikes we’ve seen in the past 2 years. But most agencies are not so lucky.
Of course, scale is key as well. Take those base costs and divide by 21 clients and that means each client only needs to contribute to $83 a month in operational overhead with labor costs remaining constant.
So let’s look at the numbers now. $83 goes to operational overhead, minimum $612 goes to staff. That’s $700. If you’re paying $1,000 a month, then the agency gets $300 a month minus the cost in marketing and sales it took to acquire you as a customer. For us, customer acquisition costs are usually around $1,000, so we wouldn’t even start making a profit on a small client until month 4, which is why most agencies won’t work with small spends.
As we’re quite adept, we’re often able to get results for clients much quicker than other agencies. And, after 5K in ad spend, we change over to a standard agency model of 20% of spend, so that we actually can make money. The great part of a percentage model is it’s performance-based and ensures we also have skin in the game. As an agency, we’re incentivized to get results so that clients increase their spend with us.
And, of course, if we’re delivering 3-10X returns on ad spend on a consistent basis, then it’s a win for everybody. The client makes more money and we share in those returns.
Realistic Expectations with Returns
Another situation we often run into is clients expecting us to make them a ton of money, but not willing to pay us to do so. We’ve literally had clients that wanted 10x returns, but were only willing to pay $2,000 a month. So if we’re running an ad spend of $30,000 and deliver a 10X return that brings in $300,000, do you really think we’d be willing to work for $2,000 a month, or .007% of the revenue we brought in? Would you take that deal?
Of course not. Expectations of higher returns are almost always going to come with more work and are certainly going to come with higher agency fees. If we’re going to build your business for you, we’re going to expect to partake in those rewards.
What About Working for a Percent of Sales?
We are not aware of an agencies that do this. Performance-based marketing is always on a per lead basis or tied to a percentage of ad spend.
This is for several reasons:
- Marketing requires building momentum.
- 1-to-1 linear tracking does not exist.
- Downline and referral sales cannot be tracked.
To expand on the above, if a company does not have a marketing channel currently working, it takes time to build. Marketing is all about trust and trust takes time. So if a marketer spends a month building the trust required to deliver leads and sales, that means they don’t get paid for all that work, despite the tremendous value it will bring to the business.
While the tracking of results in the digital age has transformed marketing and business, it still can’t track every sale accurately. In fact, we tell clients that, taking Facebook as an example, only 30% of sales are accurately tracked through the platform.
This is easy to see with something like e-commerce. Sometimes Facebook’s analytics are just off, but, more often than not, shoppers will do things like check out the product on the main website, then go buy it on Amazon because they want to use their Prime membership for free 1-day shipping. FYI, Amazon doesn’t allow you to install your own backend analytics, like the Facebook pixel, to tell you who’s buying from where, unfortunately.
Or maybe they view the product on their phone, but then end up buying it later that evening on their desktop while not logged into FB, so the transaction cannot be tracked.
Finally, most sales come downline. It’s extremely rare for people to see an ad and just buy. Think about it. When was the last time you saw an ad on TV, the newspaper, or on a billboard and immediately bought the product/service after seeing it? Most people answer never. So why would you expect the same from a digital ad?
So they’re buying days, sometimes months after the fact, which can’t be tracked very well. Or maybe they see an online ad and go into a physical store to buy it. Or maybe they tell a friend, who then buys the product. All of these situations cannot be tracked back to specific campaigns. For each one, the company would be earning revenue off of the marketer’s hard work, but then not paying them for it.
Since this is the case, smart freelancers and agencies will not accept pay-per-sale contracts. At Circle Social, we once made a similar agreement, but we took 10% equity in the company as payment, since that means we were entitled to return on every single sale, not just the smaller percentage that can be accurately attributed and tracked.
So that’s it. As a company looking for a digital marketing partner, you need to analyze what kind of returns you’re expecting to achieve, how much you’d have to pay someone with experience attaining those kinds of results, and understand the operational costs of a standard agency.
Once you know those numbers, it becomes very clear how much you need to pay to get X level of results.
We hope with this information that you can make a much better decision as to what price points make sense for your business. Good luck out there and if you’re looking for some expert help from a team experienced in delivering actual ROI, reach out to us below.