Home » Marketing » A guide to choosing a marketing agency
Last edited: June 29, 2022
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For many companies, choosing a marketing firm plays a very important role in the success of marketing efforts. Only few businesses have all the skills you need to do effective marketing, though that doesn’t always mean that you should still use a marketing agency. Sometimes it may be more cost effective not to do marketing or use freelancers, for example, to ensure cost effectiveness.
We currently do not have a marketing agency as a partner, nor are we looking for one. In-house know-how is reasonably well-suited to our various marketing efforts, and if time resources are inadequate, we will purchase help from certain freelancers for specific functions.
As a starting point, it is good to note that there may not be one right choice for your marketing agency. However, there are many wrong options. Before considering how to choose the right marketing agency, you should think about whether it is wise to use a partner at all and what to consider when choosing one.
Lets divide problems marketing agencies solve to three categories
1. Strategic partnership
When it comes to strategic cooperation, we are talking about a situation where marketing is basically is not really even done in the business at all at the moment. The purpose of cooperation is therefore to define the aims of the marketing and what the business should do in the field of marketing in general. So with the partnership you start to create and implement a strategy.
If one looks only at the amount of money moving between a company and an agency, the amount of money moving is the biggest at strategic partnership. This does not mean that the total cost is always the most expensive, as the employees on the payroll of a company also ain’t free.
2. Buying specific knowledge
When it comes to buying specific expertise, the point is that the marketing of a company is otherwise well in a good shape, but for example, Google Ads requires external expertise to make the most of it.
3. Buying time resources
When it comes to buying a time resource, the purchasing company has a clear idea of what to do and how to do it, but there is no time to do those things. In practice, this only involves buying hours from a marketing firm whose employee then performs these functions on behalf of the company.
When looking at the above three, it is also good to look at the marketing agency’s point of view. Roughly speaking, number one is often the best business for marketing agencies in terms of EBITDA. Second is the second best business and the third is the weakest business.
This is, of course, a fairly simplified generalization and depends on many things. If the hourly rate can be pulled at € 500 per hour and the billable hours are 160 hours per month for employee, then yes it is reasonably good business. However, such situations are rare. When purchasing auxiliary hands for individual tasks, communication between the office and the sponsor often takes so long that the EBITDA is almost completely consumed at this stage.
Selling specific expertise, such as Google Ads, is a bit better because the price is often not tied to the exact number of hours, but more to the fact that things are done. Of course, this is a double-edged sword, which at the same time can drive some customers to a loss, but also make others extremely profitable. The difference between the second and third options is therefore not necessarily obvious.
Often, when buying Google Ads or Facebook marketing, a significant factor in the marketing agency’s business is that most of the marketing budget goes not to the agency, but to Google or Facebook, where the advertising space is purchased.
Strategic collaboration is usually the best business. Let’s design and create a strategy together and sell big, high-value solutions for a good price. From hours spent on design, the euros flow straight to the agency, not to Facebook, Google, or the like.
REMINDER. Just because something is good for business does not mean that it is something negative for the customer. It is more important to think about what sellers tend to sell. Something with a good margin or something with a worse margin. Everyone can draw their own conclusions from this.
Everything starts with budgeting and goal setting of marketing. Now let’s throw in an example, where 120 thousand euros a year is set aside for marketing. This could be a reasonably realistic situation for a company that, for example, exchanges 2.4 million and spends 5% of its turnover on marketing.
We may think that the function of marketing is to increase the amount of sales (I am not saying that is the only task). The target is 10% EBITDA, and non-marketing costs eat 70% of the purchase price, leaving 20% for the marketing to get the job done. So you should make 600 000€ in sales with 120,000€ budget (120 000/0,2).
This is now a purely hypothetical case, and marketing investments are rarely realized within three days. However, goals must be set. After setting the targets, the question is how will the budget of EUR 120 thousand reach the targets.
Let’s play with example calculations.
Example Calculation 1:
120k € annual budget
Inside the house, a marketing manager, including side costs of 4,500 € / month.
Marketing Coordinator, including side costs for example 3000 € / month.
Total internal costs = € 90,000
That leaves € 30,000 more for media space, licenses and marketing agency services. If you want results, the lion’s share of it should be invested in buying media space.
Why? For example, let’s say the average sale is $ 5,000 and every fourth of the ready-made leads are turned to sales. It takes five guide downloads to warm up one lead to be ready for sale. The guide downloads will then require 600/5 x 4 x 5 = 2400 leads from the correct target audience. For example, if the entire $ 30,000 is invested in the media, the price for one lead should be $ 12.5 or below.
Similarly, if, for example, the work of a marketing agency eats half the budget, then the price of one lead would have to be halved.
If these numbers are realistic, then just start executing. But generally, in such situations, using a marketing agency is not sensible or, at the very least, it is only sensible to purchase hourly resources or to purchase specific expertise. You simply cannot afford to work on strategy.
Likewise, one might ask whether there are so much better marketers in a marketing agency that they would do twice as well as the marketing director himself or herself. Sure, the differences can be great if you do the job right, but even if you would completely waste half of your budget as a marketing director, you still have the same budget on hand as the agency partner would have to create results. And very rarely do the agency do 50% better results.
On the other hand, one might also ask whether it would be more effective to terminate the job contract of the marketing director and to spend more money on the media and marketing agency?
Example Calculation 2:
Marketing Manager € 4,500 / month including side costs = € 54,000 per year
Other expenses will be € 66,000. This makes the equation much more sensible if one thinks that the work of a marketing agency would, for example, eat € 15,000 and leave the media at € 51,000. In this case, the equation is much more likely to make sense, all though media is still less than 50% of the total budget. Not that it should be over 50%.
The differences are often made with content and ads, but only if someone sees those content and ads.
The distinction between media and work is, of course, somewhat hypocritical, because the question is what makes the difference. Search engine optimization does not eat advertising bucks, but consumes resources in the form of work.
The key question is how to get the most out of the money you use.
For marketing agencies, the reasonably standard hourly rate is 90 € / hour. Of course, this ranges from 60-250 €. The $ 60 hourly rate is actually mostly only available in the freelancer field.
Similarly, monthly salaries in a marketing agencies are often between € 2,500 and € 5,000. The most recent employees are at the bottom end of the pay gap and, of course, the experienced seniors at the other end. Of course, there are always those who get paid a lot more.
However, with a cost of $ 4,500, you should get reasonably well suited employee. If you are an in-house person, you get roughly 157.5 hours a month. If you buy the same amount of work from the marketing agency, you get roughly 50 hours from a guy with similar wage. This does not directly mean that it is worthwhile to get the person inside the house, because for that $ 4,500 you can buy three different skills from their specialist areas at a marketing agency, and you may end up with more money in the end.
On the other hand, bouncing around from customer to customer, which employees at a marketing agency have to do very often, makes the work often not that effective.
However, roughly speaking, if you know how to recruit the right person, finding an in-house expert is more cost-effective. If, on the other hand, there is no accurate picture of what kind of employee is needed, a marketing agency can be a more cost effective solution. However, buying marketing services often has the same problems as recruiting.
If, however, you have now come to the point where you want to buy services from a marketing agency, then let’s go on to compare the services of different agencies.
It should be noted that this selection procedure is based on the aim of marketing to do more sales, ie to generate growth and / or more profitable business. If you disagree with this, do not read further.
If you believe that the most important function of marketing is to drive sales, here’s a 5 step process for choosing an operator:
Set up the goals as discussed in the examples above. How much sales do you need to make and at what time interval to keep things reasonable?
Ask your acquaintances and google various marketing agencies. I recommend taking the widest possible sample, for example twenty different companies. There are also online tools that help you find the marketing agency that suits you best.
If you can find the financial info of the companies, go find them. In different countries there is different services for this, so we cant give anything universal about this.
You want to find companies that have achieved similar results in their own business that you are seeking for your business. If you are looking for growth, then it is desirable that the marketing agency has also grown in recent years.
Or how credible do you think the marketing agency’s claim is that they can do B2B marketing if their own business is not doing well?
Of course, it is worth noting that Financial Data does not usually provide real time figures, meaning no fully up-to-date information is available, but usually a bit of googling will do to figure out if they have had explosive growth very recently.
Choose from the options those companies that have grown in a way that you are aiming for, or even harder.
NB! DO NOT ASK FOR A MARKETING OFFER. Make it clear that you are interested in marketing services, but first want to hear about their own customer acquisition.
If the company grows, that doesn’t mean they can do the marketing. If they grow through marketing, they know something, but that doesn’t mean they can create growth for you. However, their own growth is the best reference as to whether or not they know how to do marketing for you.
If a company spokesman says that they make most of their sales by cold calling and the growth comes from it, it may not be wise to buy Google Ads advertising from them, but definitely sparring about cold calling.
So you want to find a company that really creates its own growth through marketing.
Once you have found a company that has created the growth you want and has done it through marketing, it’s time to ask for references. Have you succeeded with our kind of businesses?
Often companies jump directly to this reference step. The problem is, anyone hits the middle of the dart board as long as they throw enough darts. In the same way, marketing agencies will get complete references even without expertise, as long as they get enough customers.
If the previous criteria are met, the references are okay, and the results from the reference case sound good, you can go to the last step.
Sometimes there is no references and therefore risks have to be taken. This is not an ideal situation, but sometimes necessary. In these cases you just have to rely on your own gut feeling.
In the final step, you tell the marketing agency your budget and goals. You ask if the goals on the budget are realistic and if they want to make you an offer.
If they think the goals are realistic and they are making a budget-friendly offer, then just start working together.
Marketing agencies are not always useful, but if a suitable partner is found, then there is definitely a place for them.
The most common mistake is to buy a service that does not get any results, with a cheap price. The service is cheap, but the money goes straight to the trash. Or, buying a well-done service so expensive that the profitability of marketing is not even theoretically possible.
The points related to choosing a marketing agency also apply to our own operations. It is worth asking our salespeople how we personally utilize the things we offer our customers. For example, the use of references as part of the sales process is already evident in the sales process itself.
From a marketing point of view, the question is not so simple. We have mostly grown through active sales, not inbound marketing. We utilize customer experience in our inbound marketing, but our approach continues to be based primarily on active sales. So don’t expect customer experience videos to do magic tricks for your inbound marketing, unless your marketing is not otherwise honed.
This does not mean that references are not relevant to inbound marketing, but alone without other marketing efforts they don’t make magic happen. Because of this, we also have a Success team that spars our customers more widely in marketing and sales.