Last year, we released our first-ever State of the Agency report, an inside look at how digital marketing agencies run their businesses. It was a big hit, so this year, we’re doing it again, with updated data and twice as many questions to reveal what makes agencies tick, their biggest challenges, their pricing models, how they acquire new clients and more.
We gathered the data by sending a survey out to our agency clients (about a third of our customer base uses WordStream Advisor for Agencies to better serve their own clients’ advertising needs), and got back answers from hundreds of agencies all over the world.
Below you’ll find the results of our State of the Industry report – here’s how agencies are getting it done in 2018!
Half of responders price their services using a flat fee or retainer fee model, while 25% charge based on a percentage of spend (we got similar responses last year). About 12% use billable hours – which, as we noted last year, may undersell the value you’re offering if you use agency software to improve efficiency.
Of those who chose “other,” pricing models included charging by a percentage of profit or value per lead, a mixed pricing model (such as “Minimum Management Fee + Percentage of Spend”), or changing models depending on total spend. As one agency responded, “It depends on how high the media spend is. If it’s a certain threshold, we’ll do percentage of spend but if it’s a small campaign, we’ll do a management fee based on expected hours to manage it.”
Of those that charge based on a percentage of spend, most (about 18%) charge 15-20% of spend, with about 10% charging 10-15%.
While 22% of respondents do not charge any additional fees at all, among those who do, services that typically accrue extra fees include landing page creation and campaign creation. Account audits and implementing conversion tracking also made the list. Other services that warrant extra fees include remarketing and display ad creative.
64% of agencies surveyed do charge a set-up fee – same as last year.
About 35% of agencies that charge a fee charge less than $1,000 for the service, with 25% charging over $1,000 but less than $2,500.
Almost a third of the marketing agencies we surveyed do not have a single full-time employee fully dedicated to paid search advertising, while almost 40% have one full-time dedicated paid search manager, and 28% have two to five.
Other popular services that our agency clients offer include social media marketing, SEO, display marketing, web development, content marketing, email marketing, and creative services. Less common answers included public relations, sales enablement, account-based marketing, event marketing, and reputation management.
Almost half of respondents said they spend less than 25% of their time on paid search advertising (not surprising, perhaps, considering all the other marketing services they offer!). About 12% spend more than half their time on paid search, with just under 5% spending most of their time on paid search.
Here’s one where the answers changed quite a bit. The single biggest challenge for the agencies we spoke with remains finding and acquiring new clients – but we’re pleased to see that time management is less of an issue in 2018 than it was last year. Just 23% of this year’s respondents said managing their time is a struggle, whereas 40% of agencies were struggling with time last year. Better tools, perhaps?
We added a new answer this year – hiring and training new employees – and 15% of agencies said they struggle with this process. As agencies grow, it’s critical to bring on new talent and get them up to speed quickly so they can serve those new clients.
Always be growing! 95% of agencies we surveyed plan to add more paid search spend under management this year.
We’re excited to see that almost half of agencies who responded have grown their PPC spend under management by more than 25%.
Marketing agencies using WordStream Advisor serve many different industries, with some of the most popular including healthcare, home services, real estate, ecommerce, legal, travel, software, and auto – with 30% of agencies serving other industries not listed here.
As we saw last year, the majority of agencies who responded say less than 25% of their accounts were not created by their agency. (In other words, most agencies are building most of their clients’ paid search accounts from scratch.)
About 70% of the agencies we surveyed are managing client accounts on at least three major ad platforms: AdWords, Bing, and Facebook. A quarter of respondents focus their online ad services on AdWords. (Not surprisingly, no respondents manage only Bing.)
The most common response: one to five hours per client per week. However, there’s a lot of variation here, with about 15% of agencies spending more than 10 hours per week on each client’s PPC.
Another happy result: More than half of agencies are spending less than one hour per week, per client, on reporting. (Who wants to spend all their time reporting?!)
Another new question this year: Where do you start when optimizing a new account? By far the most popular starting point was keyword research. Makes sense to us – we always say you can’t get anywhere in search marketing without the right keywords.
The second most popular starting point was negative keywords – a common pain point that came up in our last Grade and Get Paid contest, where entrants were asked to run two AdWords Grader reports and describe what they learned. (A failure to set the right negative keywords is a huge source of wasted spend.)
More than half of agencies conduct all competitive research in AdWords alone. But SEM Rush and SpyFu are pretty popular competitive tools too.
Far and away the most common source of new client acquisitions is client referrals. But 26% get the most leverage from upsells.
Agencies use a host of different learning resources, from blogs to seminars, to stay on top of trends and the changing world of online advertising. Commonly named resources include WordStream (thanks! We try!), Moz, Google documentation, YouTube videos, HubSpot, SEM Rush, Search Engine Land, Search Engine Watch, Udemy, Quicksprout, Clix Marketing, PPC Hero, Ahrefs, and the Agency Management Institute.
What were the overarching trends this year? What’s top of mind?
- Growth, growth, growth – Digital marketing agencies were successful in growing their paid search management under spend last year – but they’re not stopping now! Most agencies are looking to drive further growth this year, whether through upsells or bringing on new clients.
- Quality of service is key – With word of mouth and client referrals as the #1 way to acquire new accounts, delivering stellar results to existing clients is absolutely crucial. Agencies need to strike the right balance when it comes to dividing resources between maintenance and growth activities.
- Cross-platform advertising – Most agencies we spoke to are managing online ad spend across at least three different platforms, and offering a number of different services aside from paid search. Agencies get that businesses need to run cross-channel campaigns and diversity their marketing channels to succeed in 2018.
- Hiring/education/training – You can’t grow your agency without adding more head count or adding new tools and software to make existing reps more efficient. With aggressive growth, both are needed – and either way, agencies need to set aside resources so they can hire and retain great talent and keep their staff trained on all platforms.
Over to you, agencies – how have your strategies changed in the past year? What changes are you looking to make in the future?
Thanks to Kate Lindsay, Jess Armstrong, and Chris McHale (and, of course, our customers!) for their help in creating this report.