Your Agency Cost Calculation Is Wrong

Building up a full-service marketing department from scratch is more expensive than you think.

One of the most common hesitations we hear when we talk to a prospect about our marketing retainer work is “but that’s so expensive—why wouldn’t we just hire in-house?”

Good question.

Hiring in-house is an appealing solution for many companies, especially when it comes to ongoing marketing work. Why spend $170K a year on an 80/mo. marketing retainer when you could hire a full-time employee for half that and have them for more hours a month? How does anyone make the math work?

By the end of this article, we’re going to get very specific about the math and hopefully give you all the tools you need to run the same calculation with your own numbers. But to give the short answer up front, here’s what too many industry marketers miss about their agency cost calculation:

Building a marketing team with all the expertise you’re looking for costs more than a single employee.
Agencies can throw down more resources in a crunch period and ease up during slow periods.
The hourly rate calculations for internal staff don’t account for downtime, skill building, culture development, benefit packages, vacation time, payroll tax, and other costs associated with full-time employment.
Hiring internally also doesn’t account for the management overhead of hiring and developing new team members.

We’re going to dig into each of these points in depth, but the gist is this: Hiring a marketing agency is about the same cost as hiring a senior marketing employee—only your agency brings more expertise to the table than a single individual ever could. Skip to the last section if you want to run the numbers for yourself. In the meantime, let us lay out our reasoning.

1. Leverage fractional expertise.

Marketing encompasses a ballooning realm of professions including strategists, content creators, designers, developers, researchers, videographers, and photographers. Skill requirements for these jobs include knowledge of various social media platforms, design programs, content management systems, coding languages, and (increasingly) generative AI.

No one person can do it all.

This is why expanding a marketing department is such a tricky task. Marketing directors are usually heavily skilled in strategy: they know what KPIs to follow, understand customer pain points, and can create a detailed roadmap toward boosting leads, raising brand recognition, and demonstrating ROI.

What they can’t do is write a blog post. Or edit a video. Or build a website. Certainly not all those things at the same time at the rate of execution required for them to hit the milestones laid out in their strategic plan.

So they need to hire help—but their budget isn’t enough to hire on a content writer, a videographer, a designer, and a web developer. And even if they hired on one of those positions, they wouldn’t have full time work for just that one person. What they need is a portion of each of those positions. Maybe to start they need 40% of a designer, 40% of a web developer and 20% of a content writer. But then with the website launched they need 10% of a web developer, 30% a content writer, 30% a videographer, and 30% of a graphic designer. Very likely, that specific balance changes month to month.

Again, no one person can do it all. But for the budget of one person, you can hire an agency to handle all that work for you. This is the world of fractional marketing: You determine the size of the marketing retainer you need, and then you can tweak what percentage of each skillset you want month-to-month.

2. Smooth over capacity fluctuations.

Speaking of month-to-month variation, agencies possess a magical superpower to expand and contract capacity as needed. Most businesses have busy seasons balanced by long periods of down time. For full-time workers, this can mean months of the year where they are consumed by critical projects, followed by long stretches where they have nothing to do. Busy season can be a miserable period with high burn-out, while the doldrums leave valuable employees with precious little to do. It’s a lose-lose.

Meanwhile, with an agency, if you have 200 hours of work one month and 20 hours the next, they can handle the fluctuation with a great deal more grace. For marketing managers, this often feels like tasks getting done in lighting speed. A whole new website in three months? An article every week? That infographic is already done? Slow down.

Sure thing! Or, you can hire on more help to review the work we’re turning in so that we can keep the marketing engine running at full cylinders. Your call!

The point is, putting an agency on, say, a 40–80-hour retainer doesn’t mean you’re committed to all those hours exactly every month. Roll those hours over so that they’re in your back pocket for busy season. Press the accelerator when you need to speed up; ease off when you need a break.

3. Get the most of your billable hours.

We think of work weeks as 40 hours, but the reality is that no one puts in 40 billable hours of work during that time. There’s natural down time, breaks to chat with colleagues, bathroom breaks, awkward bits of time between meetings with no new emails to read or send, interruptions. There’s also the time that person needs to train and upskill, internal meetings that aren’t directly related to their marketing work, work parties, watercooler chatter, and other necessary but time-consuming moments that are essential to build a healthy culture.

At peak performance, you may get 30 hours of productive work per week. Maybe you get a little more during your busy season, but remember that working longer hours offers diminishing returns: Your employees can only get so much work done, and eventually fatigue will cause their productivity to drop even as their hours stay high. And this is during the busy season. When things are slow? You’re still paying a salary, even when there’s less for that person to do.

On average, over the course of a year, your full-time employee is probably only doing 20 hours of work a week on the marketing-related tasks you hired them to do. That’s not their fault—they’re working hard! It’s just the nature of seasonal workflows combined with the internal overhead time-cost of having them part of your team.

By contrast, while the hourly rate of agencies seems high, you are only paying for billable time. An agency on an 80-hour monthly retainer will be doing the same amount of dedicated marketing work as your full-time employee—but with a greater ability to roll with changing capacity needs.

4. Make ______ someone else’s problem.

Staffing. Employee benefits. Upskilling.

Hiring a new team member is never just about filling a role. It’s about integrating a person into that role and into your culture, ensuring that person is taken care of, and growing them in their role so they stay happy. All this is hard work, and if that person moves on, you’ll have to start it all over with the next hire.

This is no small issue. Our marketing research showed that Believers (67%) were significantly more likely than Achievers (40%) to have lost staff in the last year. Digging into this issue, we found that while all segments struggled to find qualified talent, Believers (42%) had a hard time retaining talent compared to Achievers (22%) and even Cynics (24%). Believers were also an outlier when it came to employees leaving their company for other industries, with 38% reporting this a challenge compared to 9% of Achievers and 20% of Cynics.

Of course, your agency will also experience turnover. But managing that turnover—and ensuring a consistent quality of service—is their problem to manage, not yours. Moreover, a good agency relationship will most likely outlast your internal staff, who can come and go as they please. We have multiple clients whose entire marketing departments have turned over during our time working with them, and we’ve provided the bridge to keep consistency and quality high.

So if you suddenly need a videographer for a project, you don’t need to personally review portfolios, select a vendor, and sort out paperwork—you just ask you agency. When new technologies emerge and the industry changes, you don’t need to invest in training your new hire on emerging trends—your agency is already on the ball. Vacation? Your agency will manage the project so that everything moves forward according to plan. Just focus on your own time off. You deserve it.

Are agencies an untapped resource in industrial marketing?

One of the more ambiguous findings of our report was that agency use among manufacturers was consistently average. 57% of respondents either were working with an agency already, or had done so in the past and planned to again in the future (40% for Achievers and Believers, 25% for Cynics). This speaks strongly for agencies as a vetted and valued marketing partnership among industry peers.

Furthermore, there was heavy cross-over between those who said they a) had not worked with an agency and had no plans to, AND b) had no in-house marketing department and did not plan to develop one. In short, agency skeptics are commonly marketing skeptics as well.

At the same time, given that both Achievers and Believers use agencies at similar rates, it’s clear that working with an agency alone is not a game changing solution. Agencies are such an essential resource, and manufacturers lean on them for such a range of needs, that it’s difficult to distinguish from our findings alone whether Achievers and Believers use agencies differently, or how that difference might contribute to the success of the first group. Still, from our own experience, we would offer some recommendations:

Hold a high standard. All agencies are not created equal. Expect your agency to take the time to learn about your business and your customers. The work they put into building a relationship with you will have a direct impact on the quality of their work.
Look for strategic partners. Our research has shown that many industrial businesses primarily look to agencies for new ideas and creative insights. If you only use your agency to outsource routine tasks, you’re missing out on a huge part of their value.
Hire team players. There are many kinds of agencies out there, and some have strengths that others do not. If your current agency doesn’t fill one of your needs, they may know someone else who does.
Iterate. It sometimes takes a few tries to hit on a winning strategy, and a tactic that worked well for a while may eventually run out of use. Sometimes that’s because of circumstances outside of our control (e.g.: a global pandemic; tariffs), and sometimes it’s because of industry-changing technologies (e.g.: the rise of generative AI and the collapse of SEO). Be flexible in your own perspective, and make sure your agency is reading the weather and able to bend with you.

When should manufacturers hire marketing internally?

While we’ve focused here on the pro-agency case, we want to be clear: many of our best relationships are with businesses who have already invested in an internal marketing department. The head of marketing is usually our strongest advocate, and we see the growth of an internal marketing team as a sign that our work is successful.

We also believe there are some cases were making an internal hire is the best call. These include:

You need a marketing leader. We sometimes work with clients who don’t have an internal head of marketing. In these instances, either the owner or the CFO has been our point of contact, and they tend to be heavily invested. We have not had a successful marketing relationship with an absentee owner who also hasn’t deputized marketing to a trusted decision-maker.

You, the marketing leader, need internal support. We sometimes work with clients who do have an internal head of marketing… they’re just overworked. As a result, we turn in work and then it sits unreviewed for weeks. As a result, we can’t demonstrate ROI because the work we’ve completed hasn’t been used. When a marketing director hits this point, we want to see them hire additional internal support.

You have enough consistent, year-round work of a specific variety to justify a full-time hire. Agencies shine due to the variety of expertise they bring to the table, and their deep bench of available man-hours to throw down during busy season. But if you have enough work within a single skill set to fill someone’s hours full time, that’s going to be the more economical choice.
You need someone to interface with clients directly and consistently. Some agencies provide front-line customer support, but most of the clients we’ve spoken to prefer to hire this as an internal role. While we’ve also white-labeled our own services when communicating with client customers, we’ve found this approach works best on a specific project-by-project basis, and not for ongoing client-customer relationships.

Many of you in the manufacturing or manufacturing technology field may notice a criteria missing from the above list: industry expertise.

There are a few reasons for that: 1) Many agencies (including us) bring industry expertise to the table. 2) What many businesses actually need is not a writer-engineer, but a way to translate technical industry language into business terms that will influence decision makers. 3) Your agency’s job is to learn about you and your business. That onboarding process won’t be instantaneous, but it will happen a lot faster than you think!

Adjust your marketing agency cost calculation.

Let’s run the actual math.

You find a unicorn marketer who can do all the skills we listed in our first point about fractional marketing. You offer this amazingly skilled worker a 100K salary. That salary is the base. Now add on your benefits package: health insurance, PTO, an annual bonus, retirement benefits—and don’t forget payroll tax and unemployment. The U.S. Small Business Association estimates that the actual cost of employment is 25–40% more than the base salary.

That’s a starting point, but it doesn’t account for the cost of lost experience and onboarding when that employee leaves. In his article on this subject, Rand Fishkin cites that the average cost of turnover is 100–300% of employee’s salary. Finding their replacement can take months, and once that new person is hired, it will take many more months for that person to fully onboard.

We promised a calculation, so here it is.

If you like the numbers we cited above, then the math you should run is:

(Salary)(Multiplier) + (%Turnover Cost/Employee Tenure) = Cost of Employment

Let’s say you keep your employee for 5 years, their actual cost of labor is x1.25 their salary, and replacing them only costs 100% of their salary. That’s (100K)(1.25) + (100K/5) = $145K per year at the low end. At the high end, if we assume the actual cost of labor is x1.4 their salary and replacing them 300% of their salary, then our calculation would be (100K)(1.4) + (300K/5) = $200,000 per year.

This is a good first step, but to make this a true comparison, we still need to translate this into hourly rate. 40 hours a week x 52 weeks in a year = 2080 hours a year. But remember: even though you’re paying your employe for full-time work, they won’t be putting it 8 hours of billable marketing tasks. Once break time, internal meetings, vacation days, holidays, and professional development are taken into account, this number is considerably less.

Our agency sets as a target 6 hours of productive work from employees each day. This is to protect our people from burnout in an industry known for harsh work/life balance. But even those 6 hours a day includes some internal hours and does not include vacation time. Once these are taken out, we plan for every employee to put in 1265 marketing-billable hours a year. This means to get an accurate idea of an employee’s hourly rate, you need to divide their salary not by the total number of hours in a year (2080), but by their expected marketing-billable hours (1265).

ACE/1265 = Hourly Billable Rate

If we were to translate that salary into agency dollars, assuming 24.4 productive billable hours a week, then at the low end 145K/1265 = $115/hr. for your employee, and at the high end you pay $158/hr. And remember: This is the best case scenario for a marketer who is likely impossible to find and even less possible to retain.

Unless you turn to an agency.

Our agency bills at $175 an hour. That’s between 10–50% more than the in-house hire we described above, with one key difference: we aren’t a unicorn.

We can do everything you need. If your new hire doesn’t have all the skills you need, you’ll end up working with an agency anyway—or compounding your overhead with a second or even a third hire.

Our capacity is flexible. No burning people out or floating them during slow periods. Roll hours over as you need them, and adjust which services you draw upon month-to-month.
You won’t have to worry about replacement costs. Not every relationship lasts forever, but by and large, agencies are available to work on your terms. A good agency relationship promises a level of long-term stability and security that can’t get hired away from you by the competition.

Now, you may run your numbers differently. In fact, we encourage you to do so, taking the factors we listed into account. You’re looking to hire a new member for your marketing team:

What are you offering them in salary?
How does your company calculate the actual cost of employment?
What skill sets do you expect that person to have?
Are those expectations reasonable?
Have you had luck finding and retaining people with those skill sets in the past?
How much work do you expect them to complete in a week?
Will you have consistent, year-round work for them, or will you have to float them through slow periods?
Will they fill all your needs, or will you need to hire outside help anyway to get through the busy periods and handle work your internal hire can’t do?

You know the answers to those questions better than we do. Run your own math. Come talk to us when you’re done.