State of the Digital Marketing Agency in 2023: Our 10 Biggest Takeaways

wordstream state of the digital marketing agency 2023 - agency pricing models

After a brief hiatus, WordStream’s State of the Digital Marketing Agency report is back—and this time, it’s bigger than ever!

We surveyed over 300 agencies in the US and Canada on everything from the services they offer, how they price those services, their size and structure, their biggest business challenges, and so much more.

To give you a little peek at some of the data, we’re featuring 10 of the biggest takeaways and what they mean for your agency. Let’s dive in!

?️ Download the full State of the Digital Marketing Agency industry report for 25 charts and data points that will guide your 2024 planning!

1. More agencies are pricing using a hybrid model

wordstream state of the digital marketing agency 2023 - agency pricing models

Our data shows that the hybrid billing model has grown in popularity over the last few years. In our 2020 report, flat fee and hybrid billing models were about equally common, but this year, almost half of all agencies we surveyed are using a hybrid billing model.

“There are lots of options for how agencies can price their services. We’ve seen hybrid billing models grow in popularity because they provide the flexibility for agencies to price their services in a way that benefits both their clients and their own bottom line.” said Erin Rose, Sr. Director of Partner Development for LocaliQ.

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2. Agencies are charging extra fees for creative services

wordstream state of the digital marketing agency 2023 - agencies charging additional fees

Curious what services and add-ons agencies are charging additional fees for? Landing page creation was the most popular, followed by image ad creation and display creative.

This makes sense because these are time-consuming marketing activities that require expertise and creativity. Plus, effective landing pages and strong creative are crucial to the success of digital marketing campaigns.

Aside from creative services, reporting and tracking were valuable services agencies charged additional fees for.

By offering these services in-house, even for an additional fee, you can add value to your existing services while increasing revenue for your agency.

3. Social ads is the most widely offered service by these agencies

wordstream state of the digital marketing agency 2023 - agency services offered

It’s interesting to see the mix of services the agencies we surveyed offer—with social ads, content, and creative services leading the pack, followed by SEO, search advertising, and email marketing.

These strategies continue to be accessible and cost-effective for all types of businesses—making them a reliable option for agencies offering digital marketing services.

This data also shows that most agencies are offering multiple services for their clients. (We dive deeper into that data in the report.)

4. Most clients run multiple services with one agency

wordstream state of the digital marketing agency 2023 - number of services running with agency partners

Of those surveyed, 93% said their clients are running two or more services with them—with 34% saying their clients run an average of 4 or more services with their agency.

This is good news because if your clients are running more services with you, there’s a good chance you’ll be able to retain and potentially upsell them.

This also means your agency should consider ways to offer more services to clients. Running one or just a couple of services decreases your revenue potential—and keeps you from providing a better experience for clients who will have to work across agencies for all their digital marketing needs.

5. Agencies are spending a lot of time managing paid search for their clients

wordstream state of the digital marketing agency 2023 - time spent managing ppc per client

41% of agencies offering search advertising services are spending 2-4 hours per week managing PPC per client—and 16% are spending 5 or more! This time can add up quickly and hinder your agency from onboarding new clients and adding more services to help retain existing clients.

If you’re spending more than a couple hours per week managing search per client, consider outsourcing or researching automated tools that can cut down on your PPC management without sacrificing results.

6. Smaller agencies have fewer employees performing multiple job duties

wordstream state of the digital marketing agency 2023 - agency employee size

53% of those surveyed have fewer than 25 employees and 23% are sole practitioners. Meaning most of these agencies’ employees are wearing multiple hats, from account management, sales, reporting, and more.

For example, over half of agencies surveyed don’t have any employees fully dedicated to sales. 18% have employees partially dedicated to sales, and 43% have at least one employee fully dedicated to sales.

? Download the report to find out what percentage of agencies have employees dedicated to account management.

7. Agencies have a varied tech stack (that now includes AI tools)

wordstream state of the digital marketing agency 2023 - tools in tech stack for agencies

A good tech stack is essential for agencies—especially smaller agencies doing more with fewer people and resources. Tools for marketing automation and email marketing like HubSpot and MailChimp continue to be important for agencies.

Agencies are also commonly using tools and software for reporting and analytics, project management, content management, and ecommerce/payments.

But one new addition is the prominence of ChatGPT. This AI tool has become an important resource for agencies and marketers looking to automate tasks that were more time intensive. We’ll be curious how the use of AI tools will evolve and impact agencies in the future.

8. Managed spend has grown (but at a slower rate than in 2018-2020)

wordstream state of the digital marketing agency 2023 - managed spend growth

34% of those surveyed said their spend under management has stayed the same in the last year. 53% said their spend under management has grown in the last year—26% by more than 25% and 27% by less than 25%.

Between the stressors of the economy and coming out of the pandemic, it’s encouraging to see that agencies have been able to grow their managed spend, although the rate of growth is lower than we saw in our 2018-2020 reports.

9. Referrals remains the top source for getting new clients

wordstream state of the digital marketing agency 2023 - how agencies get new clients

As we found in previous reports, client referrals were by far the top source for acquiring new clients, followed (not closely) by content and digital marketing.

Referrals are amazing, but if your challenge is finding new clients you should switch it up. Use these tips to get new clients if your referral well is running dry.

10. Economic conditions and uncertainty is the biggest challenge for agencies for 2024

wordstream state of the digital marketing agency 2023 - biggest challenges

Getting new clients has been a consistent top challenge for the agencies we’ve surveyed since 2018. The agencies we surveyed this year still anticipate getting new clients will be a big challenge, but economic conditions and uncertainty is the top challenge they’re worried about for 2024.

This answer wasn’t even an option in previous reports, and agencies were reporting higher rates of growth. For example, in 2018, nearly half of agencies surveyed saw their managed spend increase by more than 25%, compared to only 26% this year.

We included some tips for how to address this challenge in our report!

Get prepared for agency growth in 2024

This peek inside how other digital agencies operate, use their resources, and service clients can help inform your 2024 planning—and can illuminate some areas to focus on improving or streamlining.

Here’s a quick recap of the top takeaways from our State of the Digital Marketing Agency in 2023 report:

  1. More agencies are pricing using a hybrid model
  2. Percentage of ad spend has increased since 2018
  3. Agencies are charging extra fees for creative services
  4. Social ads is the most widely offered service by these agencies
  5. Most clients run multiple services with one agency
  6. Agencies are spending a lot of time managing paid search for their clients
  7. Smaller agencies have fewer employees performing multiple job duties
  8. Agencies have a varied tech stack (that now includes AI tools)
  9. Managed spend has grown (but at a slower rate than in 2018-2020)
  10. Economic conditions and uncertainty is the biggest challenge for agencies for 2024

For example, did you find you’re spending too much time on PPC management or reporting? Are you not offering enough services for your clients?

Need support preparing for growth in 2024? WordStream by LocaliQ can help—not only by providing industry data and insights but by helping you directly grow and scale your agency. Reach out to learn more.