During the life cycle of a business today, this question will inevitably come up. To the majority of business owners, a digital marketing agency vs in-house is a conundrum wrapped in a mystery. If you feel the same way, you can’t be blamed for feeling confused. I hope to simplify the decision for you.
Table of Contents
- Payroll Tax
- Training Cost
- Medical Insurance
- Workers Compensation and Employers Liability
- Cost of Employee Turnover
- Cost of Firing
- Lower Capital and Operating Expenses
- The Takeaway
A decade or two ago, it was common to hire an advertising agency to run advertising and some aspects of promotion. It was unheard of to forego hiring a Marketing Director and hire a marketing agency instead.
Marketing operations have now evolved to a point where it no longer makes sense, for most businesses, to hire an in-house Marketing Director, Chief Marketing Officer, Director of Marketing or any other designation the person-in-charge of marketing would go by. There are just too many moving parts in the marketing function these days.
So, it comes down to a matter of time and efficiency. One person just doesn’t have enough time in the day to be able to coordinate between media outreach, managing social media, blogging, content creation initiatives, graphic design, imagery, photography, video shoots and much more. There are only so many hours in the day, and there is a limit to creativity when you’re one person.
It’s essential to have other team members that you could bounce ideas off, share their experience and expertise, and kind of act as a filter otherwise creativity is stifled. For many business owners, the decision hinges on expense.
It can seem like it’s more expensive to hire a marketing agency vs hiring an in-house Marketing Director that has what you feel is the required experience. And, sometimes it can be true. You can find somebody that has the right amount of experience, skills, drive and time management skills. But, it’s really rare. More often than not, you are going to end up paying much more.
Below is a detailed examination of some of the costs you are likely to save by hiring a marketing agency.
Marketing Directors are very expensive hires. According to Glassdoor.com, the average salary of a Marketing Director or Senior Marketing Manager in the US is $95,652 per year. Salary.com has a much higher average salary of $142,882. Note that these figures do not include bonuses and other benefits.
The reason for these high salaries is because these are people who hold at least an undergraduate degree in marketing, business, journalism or communications. An MBA is often preferred and they typically have at least ten years of relevant experience in marketing and running a marketing team. They are also expected to have relevant technical knowledge of marketing tech applications such as CRMs, website design and in-depth knowledge of online and social media marketing. Despite this high salary, you only have access to the expertise of one person.
Yet most businesses need a full complement marketing department with many marketers, all performing different roles. You can hire a marketing agency for much less per year than it would cost you to hire an in-house Marketing Director and get access to a team of professionals who possess the skills and experience needed to execute your strategy.
Anytime you onboard a new employee, you inevitably have to grapple with payroll taxes. Payroll taxes are taxes that you pay by virtue of being an employer. There are currently four main types of employer payroll taxes, these are;
- Social Security Tax: The law mandates that you must pay 6.2% of your employee’s salary as Social Security Tax. This goes to fund the Federal Government’s social security programs.
- Medicare Tax: Employers currently pay 1.45% of the employee’s salary as Medicare Tax to fund the Federal’s Government’s healthcare program.
- Federal Unemployment Tax: Currently, an amount equivalent to 6% of the employee’s salary is paid by an employer to the Federal Government to fund unemployment programs.
- State Unemployment Tax: This tax is similar to the Federal Unemployment tax but is levied by State Governments. The amount of tax varies depending on your state but the average is about 5% of the employee’s salary.
In contrast, when you hire a marketing agency, you do not pay any payroll taxes on their fees or retainer. The marketing agency is legally deemed an independent contractor/supplier of services. The agency pays payroll taxes for its employees who work for you.
This is an often-overlooked cost. Every person you hire will need to go through a period of orientation in order to understand how the business works. During this period, the employee will need to be trained and introduced to the company systems and work manuals irrespective of their breadth of experience. In fact, an employee is expected to spend up to 90 days learning and orienting before they can operate at full efficiency.
So, the training cost can be looked at in two ways. There is the actual cost of training a new hire and there is the opportunity cost of having a new person working for you who hasn’t fully acquainted themselves with the business.
According to research conducted by the Kaiser Family Foundation, the average cost an employer incurred to provide an employee with medical insurance in 2019 was $7,188. However, Marketing Directors are senior employees and will typically have family coverage which costs employers an average of $20,576 per year.
And, the cost of medical insurance is on a sustained rise. The figures above represent a 5% percent year on year growth. Medical insurance is expensive and not the kind of cost you would want to saddle yourself with when running a business. Hiring a marketing agency rids you of this expense.
Workers Compensation and Employers Liability
States have workers’ compensation laws enacted that govern how much an employee should be paid in the event they get injured, disabled or die at work. These laws impose statutory obligations on employers. In other words, the employee doesn’t need to sue the employer to get compensated. All they need to do is to put in a claim with the State’s Department of Labor.
However, if a worker feels that the compensation wasn’t adequate due to negligence or some other valid reason, they can sue the employer for punitive damages such as pain and suffering. Depending on the circumstances, the cost to compensate a worker for injury, disability or death can be very high. Small and medium enterprises can easily find themselves bankrupt as a result of one successful employee liability claim from a senior manager such as a Marketing Director.
This risk can be mitigated by taking out workers’ compensation and employee liability insurance but you are better off hiring a marketing agency and getting rid of this risk and cost altogether.
Cost of Employee Turnover
It’s a statistical fact that 50% of new hires fail within 18 months. This is according to research conducted by an HR thought-leader from Silicon Valley. And, this happens across all job levels including senior management positions such as Marketing Directors.
What most business owners and executives don’t understand is that the cost of a hiring failure can easily add up to more than three times the salary for the position. This is due to the cost incurred to advertise jobs, interview, screen, train, buy/lease hardware and provision workspace. You must also factor in the man-hours spent conducting all these activities which would better be spent performing more productive activities.
There are also lost opportunities during the period when the business is understaffed or while the new hire is orienting to the new environment. Hiring a marketing agency ensures that your business never has to lose money as a result of employee turnover.
Cost of Firing
It isn’t immediately apparent to most business owners and executives but there is actually a cost to firing an employee. These costs include:
- Accrued paid time off: This refers to the paid vacation or sick leave that the employee has already accrued. When you make the decision to fire the employee, you must compute the cash equivalent of paid time off and pay the employee.
- Continuation coverage: If you have more than 20 full-time employees, you are legally mandated under the COBRA Act to continue offering terminated employees health insurance. Fired employees can be covered for up to 36 months at the same benefits they enjoyed while employed.
- Severance pay: Senior managers such as Marketing Directors will typically negotiate severance pay clauses in the contracts. The effect is to make it expensive for you to fire them.
- Miscellaneous: There are also other unforeseen issues that can arise and eventually lead to financial losses. For example, firing an employee could lead to low staff morale. It could also lead to overworking of other staff hence making them less productive. Additionally, firing a senior manager such as a Marketing Director can lead to a considerable loss of institutional knowledge which may negatively impact the business.
Cost of Managing Employees
Managing employees is tough. For every employee you take on, you must designate a supervisor. You must also put in place appropriate systems to manage the employee. If the organization has several employees, a dedicated person such as a payroll accountant or human resource officer is needed to compute salaries and benefits, vacation days and to deal with a myriad of time-consuming human resource issues. Examples of such issues include sick days, emergency time away from work, harassment at the workplace, disciplinary issues, conflict resolution and a host of other matters.
All these have the potential to be very costly in the long-run. When you hire an agency, you save yourself the headache of having to deal with these aspects of a business.
Lower Capital and Operating Expenses
Since a marketing agency will operate from their own space, you will need smaller office space as well as fewer desks and computers. Additionally, there are many other operating expenses that you can avoid or reduce by hiring a marketing agency. These include; utilities, telephone, Internet, stationery, office beverages, and snacks, and a host of other overheads that ordinarily come along with having a big workforce.
From the above, it is clearly evident that you are better off hiring an off-site marketing agency as “contractors” where the only cost is the marketing retainer. It costs far less to hire a marketing agency both in terms of capital and the business owners’ time investment. Additionally, you get better results with a marketing agency because you have access to a full team of specialists instead of a single Marketing Director.
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