After conquering the freelancing world, you may be ready to move on to the next logical step: starting a creative agency.

It sounds like an excellent proposition, but it won’t be an easy task if you don’t have the faintest idea of how to start an agency.

The first thing you need to understand is that working as a freelancer and running an agency are two very different things.

There will be a lot of adjustments you’ll have to make.

As a freelancer, you have complete control over who you want to work with, and which clients to avoid.

You make your own schedule, and your business is only supporting one person instead of a team. If you decide to phone it in one month and accept less work than usual, you’re the only one impacted.

When running a digital agency, however, you will need more clients. You will also need more people in your team to help you take on additional clients. Those people may leave their full-time jobs to dedicate their time to your start-up, or just be part-time team members. What matters is that there are people who are willing to help your company grow.

Owning an agency means you’re responsible for more than just your own stability and future. The decisions you make will impact everyone you hire.

As Seth Godin explained, you’re either an entrepreneur or a freelancer. Which one are you?

“Entrepreneurs use money (preferably someone else’s money) to build a business bigger than themselves. Entrepreneurs make money when they sleep. Entrepreneurs focus on growth and on scaling the systems that they build. The more, the better.”

Starting a creative agency is a big decision. Before you take the plunge, there are several things you need to know, and many decisions you need to make.

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What is a creative agency?

First, it’s important to understand the difference between being a freelancer and running an agency. There are a variety of ways that “agency” is defined.

There’s the legal definition:

A consensual relationship created by contract or by law where one party, the principal, grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party. An agency relationship is fiduciary in nature, and the actions and words of an agent exchanged a third party bind the principal.

And there’s the traditional definition:

[often with adjective or noun modifier] A business or organization providing a particular service on behalf of another business, person, or group. [as modifier] ‘an advertising agency’

Finally, there’s a modern definition:

An agency is defined as a group of excellent people collaborating around a difficult challenge and finding solutions that drive our clients’ business.

– Andrew Bailey, CEO of The&Partnership

The first two definitions could just as easily describe freelancing. You provide services to another business, typically under a contractual agreement.

But the third definition emphasizes the one big difference between freelancing and running an agency: an agency is not a one-person business. It requires multiple people.

A creative agency is a business composed of multiple people that provides creative services to other businesses. Offerings can be limited to a single service, or they can include a variety of services. Creative agencies often provide consulting in marketing, advertising, design, SEO, and technical fields.

While the day-to-day work may vary depending on your agency’s specialization, the process of starting an agency in any of these disciplines is essentially the same.

This step-by-step guide on how to start a creative agency will help you determine if launching an agency is right for you. It will help you learn more about the transition process, make the important decisions, and read helpful advice from others who’ve grown successful agencies from scratch.

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Step 1: Determine the services your agency will offer

Before you can launch a creative agency, you need to decide what services you’ll offer. You should also decide what types of businesses and industries you want to serve.

A simple yet effective tip is to offer the same service you provided as a freelancer. Begin by focusing on your area of expertise, and broaden your offerings over time as you grow revenue and your team.

For example, a freelance writer may launch a content marketing agency, while a designer can start a web design or branding agency. Transitioning into an agency that focuses on skills you have already honed is a good first step toward determining what services you will offer.

It would also make sense if you decide to become an agency that requires multiple skills that you have.

Say you have years of experience as both a content marketer and SEO specialist. It would make sense to start your own digital marketing agency since you already have the know-how in that field.

Keep in mind that it’s not a requirement for agencies to offer a wide range of services.

Many specialize in one specific service, like search engine optimization (SEO), content marketing, or website development.

If you decide to go with this option, it helps to form a referral partnership with other related (but not competitive) agencies.

Daniel Rizer, Creative Director at Catapult Creative, says one of the early mistakes his agency made was hiring in-house instead of building a professional network:

What partnerships with other agencies brings to the table… is something that an employee or freelancer has little incentive to. That is to bring new work to you. Even if it’s something you’re capable of doing in-house, sending someone else a lead who does it better than you will put you on their radar, who in turn will find a reason to send work to you.

If you’re planning to offer a single service, take time to think about the related services clients might request.

Then, find agencies that specialize in those ancillary services, and refer work to them. Since those agencies also specialize, they may in turn refer work to you.

For more ideas, check out how these six social media agencies get clients, and apply those lessons in your own business.

Step 2: Decide if you want to focus on a niche

Choosing whether or not to focus on a niche is another important early decision to make. You could be a generalist agency, providing services to business-to-business (B2B) and business-to-consumer (B2C) companies of all sizes in all industries. But you may be better served to specialize in a niche.

Kyle Racki, CEO at Proposify, asserts that choosing a niche creates a unique value proposition for new agencies:

Too many design and marketing agencies have no clear value proposition beyond ‘we do good work’ and they don’t target any particular industry or serve a vertical market, believing they should work for any business that wants to hire them. Don’t make that mistake. The way to get good clients who pay top rates is to target a specific niche so that you don’t have to compete as a generalist.

Choosing a niche isn’t required, but it offers several benefits:

It creates instant authority. Having a specialization helps build trust and credibility with potential clients. If you only build websites for hotels, you’re obviously familiar with the ins and out of the travel and tourism industry.

Having a specialization helps build trust and credibility with potential clients. If you only build websites for hotels, you’re obviously familiar with the ins and out of the travel and tourism industry. It minimizes learning curves. If you have to get to know a new business or industry every time you take on a client, you’ll spend a lot more time and money on training and education to get yourself and your staff ramped up. Focusing on just one will allow you to learn about the niche faster, and help you attract future clients better.

If you have to get to know a new business or industry every time you take on a client, you’ll spend a lot more time and money on training and education to get yourself and your staff ramped up. Focusing on just one will allow you to learn about the niche faster, and help you attract future clients better. It serves as a differentiator. If a prospect is considering ten agencies—nine generalist agencies and one niche agency—the agency that specializes in their industry will naturally stand out.

Deciding to specialize in a niche has numerous upsides to running a digital agency. It can ultimately do good for your business, but keep in mind that it’s important to do some research upfront. Make sure there’s enough demand in that industry for the services you provide, and ensure that the demand will be sustained so you can grow your agency over time.

Digital marketing: the most in-demand agency

Digital marketing encompasses strategies and technologies that rely on the Internet to help businesses gain more recognition. Some of the commonly used ones include Google Analytics and Adwords, PPC advertising, and SEO.

Why is digital marketing in demand? Simple: the Internet. The Internet provides access to a global audience, making it easier to connect with potential customers than traditional marketing ways. The idea is to create engaging content that will convince your target market to buy your product, and make connections with people that can help you be known across industries better.

This is why businesses are always looking for services such as content marketing, email marketing, and copywriting. Instead of providing these services individually, it would make much more sense to bundle them together since they collectively serve the same purpose anyway.

Choosing to become a digital marketing agency will open up a big list of potential clients and growth opportunities. Focus on establishing why your agency is better than others, and clients will be the ones to come to you.

Step 3: Choose a location for your agency headquarters

In the U.S., many business laws are enforced at the state level, so decide early where your agency will be headquartered.

Before you can make that decision, you need to decide if you want to have a physical office for your agency. Creative agencies are usually associated with studios, but it’s becoming more common for companies to operate remotely, visiting clients’ offices when in-person meetings are required. If that’s the case, your agency will be governed by your state of residence.

But make sure to consider all options thoroughly. Proposify’s Kyle Racki believes that a physical office is important for credibility:

If you want to be taken seriously by those big paying clients you’re hoping to persuade, they want to know you are a legitimate firm and not a fly-by-night operation running out of your basement… Inviting a prospective client into your studio impresses them, and even though they should be hiring you for your capabilities, a slick workspace can help you stand out in their mind as an established firm.

Racki also cautions that employees will not appreciate being asked to work in an office after being hired to work remotely, so the decision needs to be made upfront.

At the very least, you need to clearly communicate with new hires if there’s potential for a future requirement to work in an office.

How to effectively manage remote employees

Choosing to go remote is a huge plus for employees. For you, it means putting in extra effort to keep track of their time and progress at work. Checking in often would work, but it’s not efficient; an easier and more effective solution is using time tracking software.

Hubstaff is a time tracking app for remote teams that has all the features you’ll need:

Accurate and easy-to-use time tracking that records every second worked by your team.

Optional random screenshot capture that lets you see tasks your team is currently working on.

Activity monitoring feature that detects keyboard and mouse activity so you can see productivity trends over time for each team member.

Automatic payroll feature with support for leading platforms like PayPal and Payoneer to eliminate the hassle of paying your team.

Hubstaff also comes with additional features like in-depth reporting, time off tracking, and client invoicing, making it an excellent productivity tool not just for remote teams, but for agencies of all sizes and structures.

What makes Hubstaff stand out from other time tracking tools is its seamless integration with the Agile project management app, Hubstaff Tasks. Assign tasks or projects to your team and create automated workflows so that everything stays on track.

Hubstaff Tasks has a variety of productivity-focused features, such as weekly sprints, checklists, comments, detailed task cards, daily standups and more, making it the top choice for many organizations looking to implement a project management system. Plus, it’s free for up to five team members.

Step 4: Name your agency

Choosing the right name for your agency is critical—it will become the basis for all future branding. Naming is a long and complicated process that will affect the entirety of your agency’s lifespan.

You need to consider trademarks, domain availability, and long-term suitability.

Paul Venables, founder of Venables Bell & Partners, recommends keeping things simple and just using your own name:

The better reason to name your agency after real humans is a marketing one. Everything you do, every tweet you make… every panel you sit on immediately gives credit back to the agency. It doesn’t require two connections. You are a brand. Your agency is a brand. Makes life easier (especially in the beginning) when they’re one and the same.

Whether you decide to go with your own name or not, there are a few other things to consider before naming your agency:

Existing trademarks. Business names can be trademarked, and trademark infringement comes with hefty legal fees and penalties. Before settling on a name, make sure it’s not trademarked by searching the Trademark Electronic Search System.

Business names can be trademarked, and trademark infringement comes with hefty legal fees and penalties. Before settling on a name, make sure it’s not trademarked by searching the Trademark Electronic Search System. Incorporation. At some point, you’ll likely want to incorporate your business. The state where your business is located won’t allow you to incorporate a business name that’s already in use. It’s good to contact your state filing office to find out if your proposed name is available.

At some point, you’ll likely want to incorporate your business. The state where your business is located won’t allow you to incorporate a business name that’s already in use. It’s good to contact your state filing office to find out if your proposed name is available. Online branding. At a minimum, you’ll want to make sure that you can purchase a domain name that uses your business name. But you may also want to check availability of the name on any social channels you plan to use. Consistency across digital channels is crucial for branding.

At a minimum, you’ll want to make sure that you can purchase a domain name that uses your business name. But you may also want to check availability of the name on any social channels you plan to use. Consistency across digital channels is crucial for branding. Long-term goals. Don’t choose a name that’s limiting. If you name your business “Content Marketing Agency,” it won’t make sense when you expand offerings. Think about what you’ll be doing several years down the line.

Trademarks and incorporation are specific to U.S. agencies. If you’re launching an agency from another country, it’s important to review the laws and regulations in your country—or speak with a business attorney before making decisions.

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Step 5: Decide on your creative agency structure, and start hiring

Next, you must decide what positions you need—and can afford—to fill. This depends somewhat on your own strengths and weaknesses, as well as the services you plan to offer.

A good place to start is to detail out all of the activities you currently conduct as a freelancer. When scaled, what will you be unable to handle on your own?

General workload? Hire someone to help execute tasks related to the services you’re offering.

Hire someone to help execute tasks related to the services you’re offering. Finding clients? Hire an account representative or salesperson.

Hire an account representative or salesperson. Technical requirements? Look for a technical co-founder.

Look for a technical co-founder. Managing staff? Hire a partner, CEO, or other leader.

Hire a partner, CEO, or other leader. Running the business? Hire an accountant, business lawyer, or virtual assistant.

Regardless of which positions you need to fill, you need to make sure to complete two important tasks upfront: choose a leader, and create an org chart.

James Bull, Co-Founder at Moving Brands, believes that his agency’s early decision to elect a leader was an important factor in its growth:

Even between friends you need to choose a leader. You will have multiple ideas and different opinions, and I’ve learned that going in a direction is much more important than arguing about the direction… Having a leader to make the call on behalf of the team, sometimes without any discussion, really helped propel Moving Brands forward in a way that we didn’t witness in our peers.

Ian Lurie, CEO of Portent, says it’s important to create an org chart as soon as you make your first hire:

Foster organizational clarity. As soon as you hire one person, you’re going to end up with conflicts. You won’t agree on stuff. Companies live or die on their ability to make decisions. That requires that everyone knows their job, who their boss is, and the sense of mission for the company…Create an org chart with your first hire. Update it as necessary.

After you’ve decided which roles need to be filled, you need to decide what type of employment to offer.

Do you want to hire people full-time, part-time, or freelance? Each has its own set of benefits and disadvantages.

Full/part-time: The advantage of hiring staff is you get their assistance for a set number of hours each week. The disadvantage is that you pay a salary whether there’s work to be completed or not, and you will also be responsible for additional costs related to employment taxes and any employer-sponsored benefits.

The advantage of hiring staff is you get their assistance for a set number of hours each week. The disadvantage is that you pay a salary whether there’s work to be completed or not, and you will also be responsible for additional costs related to employment taxes and any employer-sponsored benefits. Freelance: The advantage of hiring freelancers is you only pay for work that’s completed, which is ideal when you’re just starting out and have limited funds. The disadvantage is that freelancers may find higher-paying work or get offered a full-time job elsewhere, leaving you with little notice and client work that needs to be completed on deadline.

It’s probably worth your time to spend some of your budget upfront on either a freelance human resources specialist who’s versed in employment law, or pay for consultations with a business lawyer or accountant.

Every country has different laws and regulations surrounding hiring, taxes, and employment, and the consequences of making mistakes in this area can lead to a quick end for your agency.

Where do you begin your search for team members?

Regardless of whether you decide to hire full-time employees or freelancers, a great place to start looking is Hubstaff Talent. It is a global directory of skilled professionals that are looking for jobs, both office-based and remote.

You can post a job and wait for people to apply, or search for ideal candidates and invite them to apply. Hubstaff Talent has tens of thousands of registered profiles, but what sets it apart from most freelance platforms is that it’s totally free to use.

Step 6: Establishing your creative agency fee structure

There are three major fee structures that agencies use to bill clients: hourly, per-project, and retainer. Hourly and per-project agreements were likely payment models you used as a freelancer, but retainers are usually the preferred model for agencies.

Retainers are essentially subscriptions to agency services. In exchange for a flat rate each month, the agency provides the client with an established set of services, number of creative assets, hours of consultation, and any other agreed elements. The client pays the rate whether or not services are needed in exchange for securing an amount of the agency’s time.

There are multiple benefits to working on retainer:

Retainers grow revenue exponentially over time. If your retainer is $500 per month, each new client you add will increase your monthly revenue by $500, allowing you to grow your agency with new client business.

If your retainer is $500 per month, each new client you add will increase your monthly revenue by $500, allowing you to grow your agency with new client business. Retainers establish a more secure revenue flow. If you’re selling services per project, the next set of revenue—and employee salaries—will be dependent on finding new projects. With retainers, you can plan ahead. You’ll have a better sense of when you need—and can afford—to hire new employees.

If you’re selling services per project, the next set of revenue—and employee salaries—will be dependent on finding new projects. With retainers, you can plan ahead. You’ll have a better sense of when you need—and can afford—to hire new employees. Retainers establish a more diverse client base. It’s risky to focus the majority of your efforts on a single client. With retainers, you can diversify your revenue streams, minimizing the amount of loss and risk if a client decides to end the relationship.

Initially, you may need to take work just to keep revenue coming in, but over time, you should work toward a retainer-only model.

When establishing a fee structure for retainers, it’s important to create various options for clients to choose from.

Entrepreneur John Rampton suggests that offering a wide range of services and do-it-yourself packages are ideal for agencies that are just getting started:

Particularly when you’re just starting out, having a wide range of services is imperative. You’ll find some clients want to be very hands-on, and just need a little guidance…You may even want to create DIY packages so small businesses can take advantage of your expertise without a huge financial risk.

Here are some great resources on determining your agency fees:

Step 7: Select and onboard new clients

With an official agency name, a detailed payment model, and new hires that enable expanding your services, you’re ready to begin onboarding new clients.

In the beginning, it can be tempting to say yes to every opportunity, but it’s important to consider new clients and opportunities carefully.

In an article for Digiday, Phyllis Dealy—founder and CEO of Reinvent the World—tells the story of turning down an early retainer offer when working for agency Woods, Witt, Dealy & Sons:

Right after we started, the very first guy who offered us a retainer—and we needed it so badly—we ended up telling him we didn’t want to work with him because we knew that his values and our values didn’t line up. That was a defining moment for us as an agency: to walk away from business because that wasn’t the right business for us.

Before onboarding a new client, it’s crucial to determine if the working relationship will be a good fit for both parties. Otherwise, you run the risk of forming long-term relationships that lower your morale, stress your staff, and fail to impress clients.

Catapult Creative’s Daniel Rizer also recommends considering clients and opportunities carefully before agreeing to write proposals:

Writing proposals takes a long time. The bigger the proposal the more research it takes… When deciding which proposals you want to invest huge amounts of time in it’s best to use your instincts to determine if you really are the best fit for the work proposed.

Consider new work and new clients carefully. The more time you devote to making sure a client and a project are a good fit for your values, culture, skills, and capacity, the more likely you’ll be to succeed in starting and growing your agency.

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Is a career as an agency founder right for you?

David Droga, founder of Droga5, offers this advice for aspiring agency owners:

You have to be optimistic—optimism gets you halfway there, and then, of course, you have to work your ass off and be brave enough to have an opinion about what you are doing, because the world isn’t looking for another agency—it’s looking for good ones.

It’s certainly possible to take the next step and turn your freelancing career into a thriving creative agency.

But remember that your success—and the livelihood of anyone you hire to take the journey with you—will only be dependent in part on your passion. The rest requires a detailed plan.

Kean Graham, founder of MonetizeMore, was successful from going from AdSense and ad server consultant to building a full-fledged location independent agency. Now they boast some of the most sophisticated ad optimization technology on the planet. You can learn more via his podcast interview.

Do you have any tips on how to start an agency after a freelancing career? Is there anything you know that could help aspiring founders succeed that we didn’t mention above? If so, we’d love to hear your advice in the comments below.

This post was originally published June 12, 2017, and updated April 2019.