Digital Agency Industry Report

The industry as a whole has shifted since 2018, away from the under-10 FTEs, and toward larger agencies with 10-249 FTEs.

The smaller firms (<250 FTEs) are typically independently owned agencies that offer more services as they grow in revenue. The smallest agencies tend to be specialty shops, while the medium-sized firms tend to be more full-service. Then the larger firms return to specializing, primarily based on the industries served.

Most Enterprise firms (250+ FTEs) in this industry are part of agency holding companies. These parent firms own multiple agencies, each focused on different specialties. By distributing clients across their portfolio, they can serve companies within the same industry, even direct competitors, without conflict. This setup allows them to avoid exclusivity issues while still delivering a range of creative solutions.

Then 2020 hit. Spending came to an absolute standstill in the first half of that year. Projects were paused. Sales pipelines went dry. And layoffs were common.

Then, midway through the year, the U.S. government launched the PPP and EIDL programs, which pumped about a trillion dollars into the US economy. That, plus a Fed Funds rate of 0%, threw the economy into overdrive.

The world was still in lockdown, and this meant that if brands were going to survive, they had to do it digitally. They went hard into digital investments across the board and pulled forward years of investments throughout 2021. Digital agencies of all kinds rode this renewed wave, with many growing faster than ever. The major challenge agency owners faced in early 2022 was competing with product companies for talent.

We got some vaccines, and the world reopened that year, but inflation and interest rates began to rise. Then, brands pulled back spending.

While 2022 started with agencies fighting over talent, it ended with shops staring down weak sales pipelines. This weakness continued throughout 2023 and didn’t stabilize for many until midway through 2024.

Layoffs and downsizing were commonplace once again. This was the first time in 20-some years where new tech wasn’t the key driver of agency growth. Agencies were at the mercy of general economic conditions, and not even the introduction of a tech like AI could spark life into a tough agency market.

While the way they’re organized can change, the core functions of a digital agency have remained largely consistent over time: Revenue Generation (Revgen), Production, Support, and Leadership.

Leadership sets the overall direction for the agency by defining the mission, vision, and strategic goals that guide everything else.

Revgen is responsible for bringing in business. This includes marketing, sales, business development, and account management, basically everything tied to generating and growing revenue.

Production is tasked with delivering the work that Revgen sells. This group includes developers, designers, marketers, copywriters, project managers, and others responsible for executing client projects. Many agencies refer to this function as “delivery.”

Support roles keep the business running smoothly. This includes functions like accounting, HR, legal, and general operations.

We analyzed 3,172 employee positions from 1,228 digital agencies and segmented them based on the type of role they performed. This chart illustrates the typical distribution of roles within an agency.

Production employees make up almost 2/3 of the typical agency. When we add Project Managers into this, it jumps to 3/4. They’re easily the bulk of an agency’s employees.

Revgen employees (sales and marketing) account for 6.6% of all employees, while Account Managers (AM) make up a similar amount. We typically combine these roles when describing revgen activities at agencies since Account Managers play such a significant role, but we’re breaking them out here to illustrate the split between AMs and Sales/Marketing employees.

As agencies grow, their employee distribution changes slightly. This chart shows how those 3,172 employee positions evolve as headcount changes.

Production remains constant at roughly two‑thirds of the total staff, while RevGen edges upward once founders exhaust their own sales capacity, growing from five percent in studios to eight percent at Large agencies. That shift reflects the need to formalize go-to-market systems and build predictable pipelines to grow past the Small-to-Medium size. See our Digital Agency Referral Playbook for more on this.

Operations grows from ten percent to fifteen percent, reflecting the additional coordination, finance, and systems work that accompany growth, though its relative growth is similar to that of revenue generation. The share of Project Management is highest in the smallest companies, drops sharply as workflows mature, rebounds in the mid‑market group, then settles near ten percent once processes stabilize. Account Management shifts only slightly, from six to five percent across the cohorts.

Digital agencies tend to grow slightly slower than other industries. The average annual growth rate for digital agencies in our surveys over the last five years has been 12%. The average annual growth rate for all U.S. publicly traded sectors has been about 13%.

We can see the massive pull-forward in digital transformation and marketing spend initiated during the pandemic play out in the growth rates. Agencies grew at a stable rate from 2015 to 2019, then experienced a dip in 2020, and then in 2021, the average growth rate skyrocketed. In ‘22, growth slowed back to average, and in ‘23, it fell even further. 2024’s average growth bottomed out at 5%, and we saw a slight rebound in 2025 to 7.5%. This illustrates just how challenging the market has been recently for digital agencies looking to grow.

Pricing was a huge discussion point throughout 2021 and ‘22, but as pipelines dried up in 2023, much of the mad dash to raise rates slowed. From 2023 to 2024, the percentage of agencies raising rates was cut in half to 22%. There was a slight rebound in 2025 to 28% raising rates, but this fell back to 20% in 2026.

Almost a third (29%) of the agencies in our latest survey charged between $175-199/hr.

Digital agencies are still raising rates, but at a significantly lower level than during the peak in 2021 and ‘22.

Most digital agencies use a mix of pricing methods. The most common is a mix of Time and materials, Fixed bid, and Retainer. Only 8% or fewer rely on any single model exclusively (e.g., “Fixed bid” or “Retainer” alone). Retainers are a recurring (often monthly) billing model based on one or a combination of the other models. The most common pricing models used in Retainer arrangements are Time and materials and Fixed bid.

This suggests that agencies tailor their pricing methods to fit different types of work, client preferences, or project risk levels.

Since 2015, digital agencies have earned an average net margin of about 15%, but we’ve been running slightly below that for the past four years. This is especially interesting because of how dramatically growth has slowed over that same timeframe. We’d expect to see a bigger hit to margins here, but in 2025, agencies once again showed continued fiscal discipline, and the average agency earned a net margin of 13%. Some of the recent margin compression appears to be due to pricing pressure from clients expecting cheaper services due to AI advancements.

Average agency margins change as agencies grow. We wrote about this in more detail in our Digital Agencies Don’t Scale newsletter. Smaller agencies tend to earn higher net margins than larger ones. In 2025, Studio-sized agencies with fewer than 10 FTEs earned an average margin more than twice as large as the average 50+ FTE agency.

The average digital agency allocates 7% of its revenue to sales and marketing. This includes everything from salaries to media spend. That level of investment, while common, typically falls short of what’s needed to hit leadership’s ambitious growth targets set during annual planning meetings.

Most agencies still generate the bulk of their leads and revenue through referrals. While referrals are a great way to get started, relying on them as the primary growth engine introduces several issues. First, they’re unpredictable. Second, they often come from people within the same network, which makes it harder to expand into new types of work or larger scopes. Third, you don’t control the quality of the referral, which can lead to mismatched expectations and strained relationships for poor-fit referrals.

To be clear: referrals aren’t the problem. They’re a valuable channel. But what sets agencies apart as they grow beyond the 30-50-person plateau is the development of a repeatable revenue generation engine. If this is referral-based, it needs to be a systematized approach to consistently generate right-fit referrals. Learn how in our Digital Agency Referral Playbook.

Agencies are still offering a broad set of services, with the average agency offering 6.6 services in 2025, up slightly from 6.3 in 2024.

While the number of services has held relatively steady, how agencies manage their service mix significantly impacts their growth rates.

The fastest gains in 2025 came from agencies that reduced their service offerings. These firms saw average growth that was almost twice as fast as the average.

While expanding services was associated with higher growth rates, it also entailed additional operational costs that weighed on margins. Those that expanded services earned 10% net margins.

Those that reduced services and grew the fastest appear to have reduced their operational complexity and tended to earn substantially higher net margins at 30% on average.

Agencies are still offering a broad set of services, with the average agency offering 6.6 services in 2025, up slightly from 6.3 in 2024.

While the number of services has held relatively steady, how agencies manage their service mix significantly impacts their growth rates.

The fastest gains in 2025 came from agencies that reduced their service offerings. These firms saw average growth that was almost twice as fast as the average.

While expanding services was associated with higher growth rates, it also entailed additional operational costs that weighed on margins. Those that expanded services earned 10% net margins.

Those that reduced services and grew the fastest appear to have reduced their operational complexity and tended to earn substantially higher net margins at 30% on average.