Digital
Marketing
Agency
Industry
Report
We’ve updated our classic report with new research from 2019. New data on revenue growth, profit margins, agency sizes and quantities, and much more is now available to guide your strategies for 2020.
NEW 2022 Digital Agency Outlook & Salary Survey
A revamped study to understand what’s really driving digital service businesses.
We’ve incorporated a ton of great feedback into this year’s survey, including the big question on everyone’s mind: salaries.
All participants will receive access to the full 2022 Digital Service Outlook report which includes the complete salary analysis. In addition, everyone who completes the survey before 2/11 will receive a 20% discount on streaming tickets to the Bureau of Digital’s Owner’s Summit.
This survey is now closed
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This report includes:
- Average revenue growth rates
- Agency profitability
- Average salaries by position – NEW
- Hourly rate data – NEW
- Minimum project sizes – NEW
- Pricing models
- Service mix including most profitable services
- Average number of clients and client tenure – NEW
- Growth outlook for 2022
- Employee retention strategies – NEW
- Key trends for 2022
Report Contents
The days of easy growth are winding down as agencies encounter new challenges such as in-housing, large new entrants, and a shift in billing preferences.
We conducted research with digital agency owners and combined our findings with other trusted sources. This report highlights the key themes driving the industry and attempts to provide a clear picture of how the digital marketing agency landscape is evolving by detailing the major concerns and opportunities present in the industry.
Introduction
The agency landscape is changing rapidly but new avenues for success are becoming available.
If you’re like most agency managers you’ve probably noticed the agency landscape changing more quickly over the last few years.
In the early 2010s it seemed almost easy to build a successful agency. Adwords, and Facebook ads let you target your client’s prospects like never before. Designing for the internet and smartphones was a new frontier that let you differentiate your client’s brands in an entirely new way. Inbound marketing was all the rage, and if you did it right you created a magical flow of seeming endless leads for your clients.
Now, targeted ads, responsive design, and robust inbound strategies are simply the costs of playing the game. Agencies are constantly being asked how they can do more for their clients.
This report will provide you with a better understanding of the various shifts happening across the agency landscape. Let it help inform your strategy and execution. It doesn’t look like it’ll get easier any time soon.
The agency landscape is changing rapidly but new avenues for success are becoming available.
Executive Summary
Agency competition has grown dramatically in recent years and we expect it to continue throughout the next 3-5 years.
This increase in competition is due in large part to a few key shifts in the industry.
The first is that brands are adding marketing talent and they’re developing their own internal capabilities. This is putting pressure on agency revenue as multiple services are becoming redundant.
Second, there has been a shift from companies accepting retainer billing to project-based billing. This shift has made agency’s revenue profiles riskier as brands shop projects around to more agencies than they have historically.
Third, the days of just being present in the marketplace being enough to build a business are coming to an end. Brands are demanding specialists and as technological prowess becomes an even greater differentiator, we’re seeing the market shake out the less capable agencies.
Fourth, the large management consultancies are moving into the CMO suite. They already dominate the rest of the C-suite and they’re throwing their weight into marketing. They’re accomplishing this though strategic acquisitions and a number of large brands have already begun using them for their agency needs.
The agency world isn’t all doom and gloom though. The turbulence in the marketplace is providing opportunities for well differentiated agencies to take significant market share. We expect to see the industry consolidate somewhat from where it is now as technological barriers to entry grow.
Agencies grew an average of 15% Y/Y in 2018.
Digital spending should continue to grow 10-15% Y/Y through 2021.
Video is the fastest growing segment.
Agencies are facing multiple challenging market shifts that are impeding growth and margin expansion.
~90% of agencies have fewer than 50 employees.
Profits are up! Most agencies generate 18% net margins.
Agencies are still overly reliant on referral-based lead generation.
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Agency Composition
Over the last year, there has been significant growth in the number of new agencies. Our estimates put this growth ~23%. As we stated last year, we expected to see increased competition in this space, but this growth is impressive for an industry that has grown revenue by ~15% in the same time frame. This furthers our view that we’ll see increased competition among smaller firms.

Over the last year, there has been significant growth in the number of new agencies. Our estimates put this growth ~23%. As we stated last year, we expected to see increased competition in this space, but this growth is impressive for an industry that has grown revenue by ~15% in the same time frame. This furthers our view that we’ll see increased competition among smaller firms.

Most of the large firms (>150 employees) in this industry are comprised of agency holding companies. These are firms who own multiple smaller independent agencies that specialize across different focus areas. These allow the holding companies to work with many clients who could be competitors by distributing them across their network of agencies. This lets the holding company avoid any conflicts of interest while still providing a diverse set of creative solutions.
The small and medium sized firms (<50 and 51-150 employee firms) are typically single agencies who can offer more services as they become larger with respect to revenue. The smaller agencies tend to be specialty shops, while the medium sized firms tend to be more full-service.
There has been significant growth in new small agencies over the last year.
Digital agencies operate in a highly fragmented market.
This is due to few barriers to entry. Almost anyone can spin up an agency in a few months.
Agency revenue has grown ~15% in this same time frame.
Key Metrics for Growing Digital Agencies
Make sure you’re measuring these 22 KPIs that are critical to your digital marketing agency’s success.
Key Themes & Drivers
Growing Digital Spend

Best Practice Implementation
Acquisition Opportunities
Exit Opportunities

In-housing of Marketing Spend
The in-house agency capabilities are also expanding. The top two things being handled in-house are social media management and basic design work. Three-quarters of in-house agencies handle public relations and digital marketing, while a little over half handle campaign development, production, and media planning.

Shift From Retainer to Project-based Billing
This shift is increasing the risk profile of agency’s revenue mix. This makes it more difficult to budget and plan growth as revenue streams are less reliable than before. We are seeing some success with a simple terminology change, from “retainer” to “subscription” but this involves productizing the agency’s services. Note also that this strategy has only been tested on smaller clients and we would expect limited success with larger brands.
Changing Marketplace with Sophisticated New Entrants

First, there are very low barriers to entry to set up a digital marketing firm. The demand for specialists ensures that top-tier talent will always have the option of setting out on their own. This option, coupled with the challenging working environment at many agencies, makes “working for yourself” and attractive option to many.
Secondly, M&A activity in this industry has remained steady over the last few years. We believe that this is due in part to the third force, limited benefits to scale. M&A in this industry tends to favor strategic capability additions rather than scale benefits.
Finally, there are limited benefits to scale for the digital marketer. After an early point, cost reduction opportunities become negligible and the perception of working with a large monolith can actually be seen as a negative by brands. Low employee tenure numbers also play a factor in lower retained corporate knowledge. It is difficult to benefit from employee learnings when they aren’t around long enough to pass them along to others.
The significant new entrants in the space over the last 10 years have come from the large consulting players. These firms already have deep ties into the CFOs, the CTOs, and the COOs and now they’re expanding their business into the CMOs budgets. The consulting firms are entering the agency space primarily through strategic acquisitions of both general agencies and small specialized shops.
Talent Retention & Acquisition
Talent acquisition is a difficult challenge as evidenced by the consistently large number of job openings at U.S. agencies. The high industry fragmentation makes building a good reputation difficult which in turn makes it harder to attract applicants. Once they are attracted though, work-life balance, compensation packages, promotion potential, etc. all play a part in the ability of an agency to secure a candidate. Unfortunately, at a large number of agencies, these are not robust enough and work against the firm during the hiring process.
Return on Investment Transparency
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A continued shift to digital spend provides a boost to top line growth.
Acquisition opportunities can aid growth and round out service offerings.
Exit opportunities for specialized firms and multiples are healthy.
Inhousing is putting pressure on agencies to differentiate and deliver.
A shift from retainers to projects is making revenue more unpredictable.
New consulting entrants are attacking the upper end of the marketplace.
Talent retention and acquisition remain a challenge.
Brands demanding transparent ROIs.
Digital Agency Benchmarking Tool
Benchmark your firm against our proprietary data set of more than 1,000 firms.
End Markets
The vast majority of the marketing spend is controlled by Chief Marketing Officers at large brands. Their budgets tend to fall in the 10-15% of revenue range and they are impacted by multiple forces from within the organization. Over the last few years, roughly 2/3 of their marketing spend has been focused on existing customers (growth and retention) with 1/3 being spent on new customer acquisition.

Agencies grew an average of 15% Y/Y in 2018.
Agencies are still overly reliant on referral-based lead generation.
Digital Marketing Agency Pricing & Billing Strategies

Fixed Fee
This model works best with clients who have a set budget they’re unable to exceed and need to know project costs beforehand. Both parties assume risk with these types of arrangements though as cost overruns are absorbed by the agencies while cost savings aren’t typically passed to the client. Fixed-fee models also may limit agency revenue growth as the option to add additional services typically isn’t available until the contract renewal time.
Value Based
Hourly Rate
The hourly rate model has the potential to incentivize inefficient practices and can misalign the agency’s incentives from the client’s. A number of industry leaders advise against this model for these reasons.
Point-based Pricing
Most firms employ a combination of multiple pricing strategies.
Value-based pricing seems to be the holy grail of pricing methods, but it’s often the most difficult to implement.
Agency Revenue Profile
Even with the trend towards building out sales teams, agencies still derive over half of their new leads from personal networks and referrals. This can be a growth limiter though as referrals and personal networks are primarily comprised of individuals with similarly sized businesses. Therefore, new referrals are very likely to be similar to your current client base. This makes it difficult to attract larger clients than you currently work with.

The majority of blended agency billing rates fall in the $101-200 per hour range. However, our research has shown that these vary widely based on the location of the agency, the types and sizes of clients served, and the types of projects worked on. Smaller market, generalist agencies tend to operate on lower billing rates while larger market, specialist agencies tend to command higher hourly billing rates.

Most firms employ a combination of multiple pricing strategies.
30% of agencies bill $101-150/hr.
Specialist agencies tend to command a higher hourly rate.
Repeatable Revenue Generation
A step-by-step guide to moving beyond referrals for digital service, marketing, and design firms.
Agency Profitability
Agency margins are influenced by numerous business levers. The most impactful is often the billing rate. The average agency margin is clustered closely around 18%. Similar to the billing rate, this is heavily influenced by the size, the location of the agency, the types and sizes of clients served, and the types of projects worked on. In addition to those factors, the agency’s cost basis (primarily employee costs) will have an effect on margins. Agencies with employees located in higher cost of living locations will have a higher cost basis than those in lower cost of living locations. This is typically offset by a higher hourly billing rate.
Since employee costs make up such a significant portion of expenses, we have developed a salary calculator to help shops get it right.

The average agency’s profit margin has improved from 10-15% to an average of 18%.
The largest expense driver for agencies is employee wages and salaries.
Digital Firm Employee Salary Calculator
Benchmark your firm’s salaries with our digital shop salary estimator based on proprietary research from over 1,000 salaries.
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