Digital Marketing Agency Revenue and Profit Margins | How Much Can You Make?

Summary

In this video, Mike Mancini, a Google Ads agency owner, discusses the profitability and profit margins of digital marketing agencies. He highlights the impact of operational costs, such as office space and employee salaries, on profit margins and introduces a calculator tool to demonstrate the potential earnings of a digital agency. Mancini emphasizes the efficiency of outsourcing work overseas and the importance of lean operations for new agencies, revealing that his own agency boasts a monthly profit margin of nearly 93%. He encourages viewers to consider the cost-effectiveness of their agency operations and offers insights on scaling a digital agency to a six-figure business within three months.

Takeaways

• 📈 Profit margins in digital marketing agencies can vary greatly depending on the size of the agency and its operational costs.
• 🏠 A home-based agency with lower overheads, such as office space and utilities, can have higher profit margins than larger agencies.
• 🛠 The speaker uses a calculator tool to demonstrate the financial aspects of running a digital agency, emphasizing efficiency and cost-saving measures.
• 💰 Outsourcing work overseas can significantly reduce labor costs compared to hiring locally, which impacts profit margins.
• 🔍 The efficiency of an employee, such as spending only 9 hours and 10 minutes on 10 clients, can greatly affect the profitability of an agency.
• 💼 The speaker pays an overseas Google ads specialist $15 per hour, which is a competitive rate for specialized work.
• 📊 The script provides a detailed example of calculating monthly revenue, expenses, and profit, resulting in a high profit margin of almost 93%.
• 📞 The cost of tools and software, such as landing page software, call tracking, and time tracking, are factored into the operational expenses.
• 📈 The potential for high profit margins in smaller, leaner agencies is highlighted, with the speaker's own margins being around 80%.
• 🚀 Starting a six-figure agency is discussed as achievable within three months with as few as nine or ten clients, underlining the scalability of digital agencies.
• 🔑 The importance of identifying necessary tools and expenses when starting an agency is emphasized, to maintain high profit margins as the business grows.

Q & A

What is the main topic of the video script?

The main topic of the video script is discussing profit margins in digital marketing agencies, including factors that can affect profitability and how to calculate and optimize them.

Who is Mike Mancini and what is his experience in the industry?

Mike Mancini is a Google Ads agency owner with over 10 years of experience in the digital marketing industry.

What are some factors that can cause variation in profit margins for digital agencies?

Factors that can cause variation in profit margins include the size of the agency, whether they have a physical office space, the cost of employee wages and benefits, and whether they outsource work overseas.

What is the purpose of the calculator mentioned in the script?

The calculator is designed to help understand and estimate the potential profit margins for a digital agency, based on the number of clients, average revenue per client, and various expenses.

How does outsourcing work affect the profitability of a digital agency according to the script?

Outsourcing work, especially to overseas specialists, can significantly reduce labor costs, leading to higher profit margins for the agency.

What is the average hourly rate Mike pays his assistant, and how has it changed?

Initially, Mike paid his assistant 8 dollars an hour, but it has increased to 15 dollars an hour due to the assistant's efficiency and the cost of living in the assistant's country.

What is the average time spent by Mike's assistant on clients in the first week compared to the following weeks?

In the first week, the assistant spent 9 hours and 10 minutes on clients, while in weeks 2, 3, and 4, the average time spent was 6 hours per week.

How does Mike calculate the monthly wage for his assistant based on the time spent?

Mike converts the total hours worked (28 hours and 20 minutes) to a decimal (28.33 hours) and multiplies it by the hourly rate (15 dollars) to get the total monthly wage of 425 dollars.

What are some of the expenses that Mike considers in running his digital agency?

Some of the expenses Mike considers include internet access, landing page software, call tracking software, time tracking software, and other miscellaneous business tools and services.

What is the monthly profit margin Mike calculates for his digital agency in the example provided?

In the example provided, Mike calculates a monthly profit margin of almost 93% for his digital agency.

How does Mike define a 'six-figure agency' and what are the revenue and profit margins associated with it?

A 'six-figure agency' is defined by Mike as an agency generating over a hundred thousand dollars in revenue. With 10 clients paying management fees, the revenue can reach 120,000 dollars with less than 10,000 dollars in expenses, resulting in a 92% profit margin.

What advice does Mike give for starting and growing a digital agency?

Mike advises starting lean, understanding what is necessary and what is not, using free tools when possible, and investing profits back into the business to improve systems and tools for higher efficiency and profitability.

Outlines

00:00

📈 Profit Margins in Digital Agencies

Mike Mancini discusses the variability of profit margins in digital marketing agencies, emphasizing the impact of operational costs such as office space, equipment, and employee salaries. He introduces a calculator tool to analyze the efficiency and profitability of a digital agency, focusing on client numbers, monthly revenue, and setup fees. The example provided illustrates how a home-based agency with outsourced labor can achieve higher profit margins compared to larger agencies with fixed operational costs.

05:01

💼 Outsourcing and Operational Efficiency

The speaker details his personal experience with outsourcing work to a Google Ads specialist based overseas, which has significantly reduced labor costs. He provides a breakdown of the specialist's hourly rate, work hours, and the total wages for the month, highlighting the efficiency and cost-effectiveness of this approach. Additionally, Mancini outlines various expenses that new digital agencies might face, such as software subscriptions and call tracking costs, and contrasts these with his own lean startup strategy, which includes minimal overheads and the use of free tools provided by Google.

10:02

🚀 Scaling Profitability in Digital Agencies

Mike Mancini explains how profit margins can be increased over time and provides a real-world example of a client's campaign that has been running for eight years. He discusses the importance of client acquisition and the revenue generated from management fees and ad spend. The speaker also shares his vision for starting a six-figure agency within three months, emphasizing the potential for high profit margins when running a lean operation. He invites viewers to join his course, 'Ads Agency Unlocked,' for further insights into running a successful digital agency and offers a free calculator tool for interested individuals.

Keywords

💡Profit Margins

Profit margins refer to the percentage of profit a company makes for every dollar of sales. In the video, the speaker discusses the significant variation in profit margins for digital marketing agencies, highlighting how factors like operational costs and outsourcing can greatly affect these margins. The script uses the example of a home-based agency versus a larger agency with overheads to illustrate the potential for higher profit margins in a lean operation.

💡Digital Agency

A digital agency is a business that provides services related to digital marketing, such as search engine optimization, social media marketing, and online advertising. The video script revolves around the financial aspects of running a digital agency, emphasizing the importance of understanding profit margins and operational efficiency in this context.

💡Outsourcing

Outsourcing is the practice of hiring external individuals or companies to perform tasks or services that might otherwise be done in-house. The speaker mentions outsourcing as a strategy to reduce costs, particularly for hiring specialists like a Google ad specialist at a lower wage than what might be paid locally.

💡Efficiency

Efficiency, in a business context, refers to the most effective and least wasteful use of resources. The script discusses the importance of efficiency in a digital agency, especially when it comes to the time spent by employees on client work, and how efficiency can directly impact profit margins.

💡Setup Fee

A setup fee is an initial charge made to a client for setting up a new account or service. In the video, the concept of a setup fee is used to illustrate additional revenue that can be generated when acquiring new clients, contributing to the overall profitability of the agency.

💡Revenue

Revenue is the total income that a company generates from its business activities. The script provides an example of calculating monthly revenue from a digital agency's clients, emphasizing the direct relationship between the number of clients and the total revenue.

💡Expenses

Expenses are the costs incurred by a business in the course of its operations. The video discusses various types of expenses a digital agency might face, such as wages, software subscriptions, and utilities, and how minimizing these can increase profit margins.

💡Home Office

A home office refers to a workspace set up within a person's home. The speaker contrasts a home office with a traditional office setup, pointing out that running a digital agency from a home office can significantly reduce expenses and potentially increase profit margins.

💡Client Management

Client management involves the processes and strategies used to handle the relationship between a service provider and its clients. The script touches on client management in terms of the time spent on clients and the fees charged, which are crucial for calculating profit margins.

💡Google Ads

Google Ads is an online advertising service developed by Google, where advertisers pay to display brief advertisements, service offerings, product listings, and video content within the Google ad network. The speaker is a Google Ads agency owner and discusses the role of Google Ads in the services provided by the digital agency.

💡Profitability

Profitability is the ability of a business to generate profit. The entire script is centered on the profitability of a digital agency, with the speaker sharing insights on how to achieve high profit margins through efficient operations and smart business decisions.

Highlights

Discussion on profit margins in digital marketing agencies and the factors affecting them.

Variation in profit margins due to agency size, infrastructure, and operational costs.

Impact of hiring locally versus outsourcing work overseas on profit margins.

Introduction of a calculator tool to analyze the efficiency and cost-effectiveness of a digital agency.

Example calculation with 10 clients and a setup fee to demonstrate revenue generation.

Explanation of employee wages and the cost-effectiveness of outsourcing to a Google ad specialist.

Details on the efficiency of the assistant's work and the hourly rate calculation.

Comparison of operational expenses between a home-based agency and a large agency.

Profit margin analysis for a large agency versus a home-based operation.

Breakdown of monthly expenses including tools, software, and utilities for a digital agency.

Calculation of profit and profit margin based on client revenue and expenses.

Real-world example of a client's campaign and the number of jobs required to cover costs.

Strategy for starting a six-figure agency within three months with a focus on client acquisition.

Analysis of the average profit per client and the overall profit margin for the agency.

Importance of lean operations and the gradual introduction of tools and resources as the business grows.

Invitation to join a course called 'Ads Agency Unlock' for more information on running a digital agency.

Offer of a free calculator for interested viewers to analyze their own digital agency's profit margins.

Transcripts

all right today we're talking about

profit margins in a digital agency can

you start a digital agency and be

profitable can you make money let's find

out

[Music]

hi I'm Mike Mancini at Google ads agency

owner for the last 10 years when you're

talking about profits and profit margins

in digital marketing agencies there is

going to be a huge variation for one

example if you have an agency with a

bunch of people and they have office

space and they have all you know all

these computers and equipment and desks

and chairs and utilities and taxes and

everything they're going to be bringing

in much less per client than perhaps I

am when I work literally out of my home

office the other huge discrepancy in

profit margins is are you hiring locally

meaning are you paying people's salaries

and benefits and all of these different

things or are you Outsourcing all of

your work overseas now I want to show

you a little calculator I put together I

dig very very deep into my business I

want to know how I can make everything

as efficient as possible how it can save

as much time save as much money you name

it so I put together this calculator to

kind of give you an idea of what you

could be looking at if you're starting a

digital agency or or if you already have

one perhaps what you need and what you

don't let's get started so the way this

works is I want you to look at the

number of clients that you have and the

average dollar amount per month and you

just we're just going to fill in just

the orange cells here so let's say you

have 10 clients and you are making a

thousand dollars a month per client

revenue of 10 grand right pretty easy

let's say you get two more clients this

month and you have a setup fee so you

make an extra five hundred dollars a

client so for that month you're gonna

make you have 12 clients now and you're

going to make eleven thousand dollars

now obviously we're making this very

simple if you start a client you get a

setup fee in a week later you turn their

campaign on you're going to start making

money okay we're just simplifying this

just for this example now let's look at

employee wages I Outsource my work

overseas to a Google ad specialist now

what I did was I took an average of just

10 clients my assistant only does Google

ads he's very good at it he's very

efficient and because he is overseas

fees it costs me much less to employ him

with that said when I got started with

him he only wanted eight dollars an hour

to start and to him that was a good

living wage where he lives so when you

see these numbers I want you keep that

in mind but for this example I actually

pay him now I don't pay him eight

dollars an hour now I pay him 15. now he

has a timer that he uses on his computer

to keep track of how much time he's

putting in on each client and for week

one for ten clients he spent 9 hours and

10 minutes working on those clients like

I said he's very efficient he's very

good at what he does he knows what he's

looking for so he can whip through these

also one thing to keep in mind a lot of

these clients I'm using as an example

are smaller clients meaning they only

might have a fifteen hundred dollar a

month ad budget you're not going to

spend 20 hours a week in that account

making changes there just isn't enough

data to make those changes so keep that

in mind when I'm showing you these

numbers now in weeks 2 3 and 4 he spent

an average of six hours a week

maintaining those 10 clients now we have

to convert this over to a decimal point

just so we can figure out the hourly

rate so 28 hours and 20 minutes of work

comes down to 28.33 and at 15 an hour

his total wages for the month were 425

dollars so that gets pulled down into

here okay what are your expenses we all

have different expenses however

sometimes when people get started they

think they need all these tools and all

of this equipment and office space and

and you name it when I was getting

started I literally was in a room just

like this now if it's just me starting

in this room we have our mortgage but

let's just take that out of it I don't

have extra rent for office space I don't

have utilities for that space I'm not

paying a bunch of employees their wages

their salaries which could be 50 60 70

000 a year I'm not paying benefits I'm

not paying unemployment taxes and

payroll taxes and all of those different

expenses and you're probably thinking

yeah well and you're stuck in a little

home office but one of the things I want

to show you with this calculator is how

profitable you can be versus a very

large agency and I do know for a fact

that for a very large agency they're

looking at profit margins at around 20

percent for every thousand dollars they

charge they'll only bring in about two

hundred dollars of that as profit let's

get back to our expenses so we've got

our phone I mean you already have a cell

phone you're already paying for it

unless you want to buy another one

whatever I just use my cell phone which

I pay for so I'm just gonna say zero

right it's already paid for every month

internet access I pay about 60 bucks a

month our landing page software now the

landing page software that we use we

have a very large package because we

have a lot of clients we don't have 10

clients we have a lot more than that but

on average it runs between ten and

fifteen dollars a month per client now

when you're getting started you might

have to pay fifty dollars just to skip

the package right which will allow you

one two three clients whatever it might

be I get that we're using just the

average so we're going to use the high

end of the range here so let's say 15 a

client times 12 ends up being I think

180 a month next our call tracking

software depending on how you set your

campaign up you might have one tracking

number you might have a dozen depending

if it's a very large client on average

we have five tracking numbers per client

I'm not going to explain why we have

five right now it's not important so

those run about two dollars each a month

so it ends up being about ten dollars a

client per month we have 12 clients 120

a month our time tracking software we

use a product called click up our

employees can communicate with us just

like it would be through slack it also

is a project management tool it's also a

way that they can go to the project

click on the project click on the timer

and they can keep the time per project

that they're working our time tracking

software like I said is click up that

runs us nine dollars a month now you can

see our calculator Has It by month but

it also has it per client so we can see

an average we spent 794 dollars a month

on average we spend 66.17 per client so

we have all the gold cells filled in so

our monthly revenue is eleven thousand

expense is 7.94 our profit is ten

thousand two hundred and six dollars

that's a monthly profit margin of almost

ninety three percent and I'm sure

probably you're thinking who's gonna pay

you that kind of money and know your

margins are at I promise you when I

started my business the margins weren't

that high but we've increased them over

time but let's use this example if

somebody's paying you a thousand dollars

in management fees per month and their

ad spend is fifteen hundred their total

out of pocket is twenty five hundred a

month but let's just use this number a

lot of our clients we'd like to see it

750 or more per job but let's use that

number right some jobs are going to be

more some jobs are going to be less but

average they're going to bring in 750.

we have to get that client 3.3 jobs per

month to pay for this campaign when you

have your systems dialed in this is not

a problem I'm going to give you a real

world example this happens to be one of

our clients management fees are actually

750 dollars I took them on a long time

ago his ad spend is only 600. his ad

spend has been six hundred dollars for

about eight years now the lowest amount

he'll take per job is a twelve hundred

dollar job we have to get him 1.13 jobs

per month to pay for this campaign

however his average job per month is

probably closer to 17.50 this is how

many Elite jobs we have to get him to

pay for this campaign with that said he

probably averages eight to ten jobs a

month off of this campaign not leads but

jobs in the past we've gotten him jobs

as high as 13 15 and 25 thousand dollars

with a return like that they don't care

what your margins are they just care

that you keep getting them those jobs

now I talk a lot about starting a

six-figure agency within three months

you're literally only talking about nine

or ten clients to have a six-figure

agency let me show you the revenue on

those numbers let's take these setup

fees and let's just say you have 10

clients a month paying you every month

that's a hundred and twenty thousand

dollars in Revenue less than ten

thousand dollars in expenses ninety two

percent profit margin the average profit

per client per month if they're paying

you a thousand dollars average expenses

are 79.40 that is nine hundred and

twenty dollars and sixty cents of profit

every single month now you're probably

wondering okay this can't be accurate

when I started my agency I had to run

lean I couldn't afford the tools I

couldn't afford the help I was doing the

help so if you're doing that you need to

make sure you put your hourly rate in

here you need to make sure that you are

getting paid every single month

otherwise what are you doing so when I

started my business I already had my

phone I already had my internet

connection what else did I need we run

Google ads so you need to have Google

ads well that platform is free to set

everything up we like to use Google ads

editor which is a tool that Google

provides that also is free for our

clients we set up reporting so basically

everything goes onto this one beautiful

report it pulls it from our call

tracking software it pulls it from

Google and it puts us on this beautiful

report that our clients can see whenever

they want we use Google's data Studio to

do that that was free when we needed to

do keyword research to find other

keywords that are working best we

literally used Google's Keyword Planner

our my profit margins 92 percent no as

I've gotten bigger I've employed more

tools and training and other things into

my business with that said my margins

are still eighty percent however those

tools and all all those other things

that I buy those really help make my

life easier so yes the bigger agencies

might only make twenty percent but as

you can see if you're running it on your

own then you can have margins that are

much much higher are you going to come

out swinging out of the gate with 80 90

margins probably not but this is

something that I've just dug down into

my business and started to figure out

what do I need what don't I need

especially when I was getting started

this is the exact model and the exact

tools that I use when I first started my

agency to get up and running then as I

made some money I would put that money

towards those other things so what kind

of margins do you have in your agency

I'm sure I'll probably get a very wide

variety and you know what don't hate on

this I'm breaking it down for people to

see the difference between working in an

agency and working on their own but let

me know what your margins are in the

comment section below I'd love to hear

about it and if you got some value out

of this please do me a favor hit that

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release new videos each and every week

and if you want more information on how

I run my digital agency and training

with over a hundred videos with weekly

coaching calls with me basically

everything you need to do to start from

scratch or grow your existing agency

learn how to run it this lean learn how

to get your profits that high I'd be

honored if you join me in my course

called ads agency unlock and to see more

about ads agency unlocked click the link

in the description area below and if you

want this calculator I'll put a link in

the description area below where you can

click on that and you can get the

calculator for free I really appreciate

your time if you're interested in more

of these videos over to the right hand

side you'll see some other related

agency videos thanks so much for

watching I really hope you liked it and

we'll see you next time