Value (noun) [val-yoo]

1. Relative worth, merit, or importance; 2. Monetary or material worth, as in commerce or trade.

It’s human nature to want to “get your money’s worth.” You want to know that the value of the products or services you’re buying is worth the amount you’re paying for them.

There are many different ways to figure out the value of something, depending on the item. For clothing, some people use “cost per wear.” If you spend $100 on a sweater, and wear it one hundred times a year (you really dig this sweater), the CPW is only $1 – a bargain! However, if you end up only wearing it once (turns out it’s itchy), the price may far exceed its value. Other metrics include price vs. ownership costs for a car and annual income with and without a degree for a college education.

But how do you determine the value of a digital marketing agency to your business? Is there a way to compare the value of hiring an agency vs. in-house marketing employees? The short answer is, maybe. There are two ways to look at it: annual investment and revenue to cost ration.

How do I determine the value of a digital marketing agency to my business?

— Every client, ever

Annual Investment

The first is the cost of an agency vs. the cost of hiring a team. The following chart shows the average salary* for each person you’d need to get for a fully functional digital marketing team. We’ve compared this to the cost of an agency’s monthly retainer plus whatever you’d invest in media (to promote your content). For the sake of comparison, this assumes that you’re spending $10,000 a month on promotion via paid media. Obviously, your company may need a smaller or larger investment to achieve your specific results.

Hiring In-house
Advertising Manager $80,000
Social Media Manager $67,000
SEO Specialist $72,000
Copywriter $76,000
Web Designer $80,000
Media Buyer $55,000
Graphic Designer $64,000
Benefits, Taxes, Vacation, Etc. $494,000 * 1.25%
Media Spend for promotion campaign $10,000/month for 12 months $120,000
Annual Total $737,500

*Salaries are national averages pulled from the ‘The Creative Group 2015 Salary Guide’.

The average annual cost of building an internal digital marketing team is $737,500.

— The Creative Group

Hiring an agency
Monthly Retainer * 12 $60,000
Media Spend for promotion campaign $10,000/month for 12 months $120,000
Annual Total $180,000

*Retainer is based on recommended budgets for monthly SEO and some content.

Obviously as campaigns become more sophisticated, your monthly retainer will increase, but so will the number of internal team members you’ll need to hire to manage the more sophisticated campaigns. With an agency, the additional resources, expertise, tools and strategy are all built into one monthly cost that is easily managed.

Agency vs. In-house... it's a no brainer.

Revenue to Cost Ratio

The most common way to determine value in business is return on investment (ROI). The second way to calculate the value of an agency is the revenue driven by your marketing campaigns divided by the cost. In contrast to the annual investment comparison above, this actually reveals the value provided by an agency.

To calculate your revenue, take the total revenue generated by a campaign, subtract your costs, and divide that number by your costs.

((Revenue – Marketing Costs)/Marketing Costs)

Depending on whether you’re using an in-house team or an agency, your costs may include media spend, creative costs, email vendor subscriptions, and management time. Using the numbers from the charts above, here is the ROI for an in-house team vs. an agency for a three-month campaign that generates $750,000 in revenue.

In-house Team ROI

In-house salary expense: $154,000

Media spend: $30,000

$750,000 (revenue) – $184,000 (marketing costs)/$184,000 = 307% ROI

 

Agency ROI

Retainer: $15,000

Media spend: $30,000

$750,000 (revenue) – $45,000 (marketing costs)/$45,000 = 1,566% ROI

Because digital advertising is a long-term, multi-touch process that leads to growth over time, the ROI may be spread over several months or even a year. Even so, this snapshot comparison can give a glimpse into the value created by an agency.