In-House vs. Agency - The True Costs of Your Digital Marketing

The increasing cost of living and stalled growth in the UK means many businesses are facing uncertain times. Shrinking markets, rising input costs and pressure to not raise prices for businesses can lead to shrinking margins and increasing pressure on internal budgets – marketing included. Recruiting top talent can also come at a cost, as employers have faced a candidate-driven market whereby potential employees can aim to command the best salary they can get. In times like these, marketing managers and business owners must think carefully about where their budget is effectively allocated and ensure activities deliver a measurable ROI.

However, during times of economic uncertainty, the value of marketing cannot be understated. In fact, those businesses who invest during recessionary periods grow faster as the economy recovers. Despite this, your business will always be looking to drive value from marketing expenditure whether it is growing, falling or staying the same. Part of this could involve assessing whether to use a digital marketing agency or go in-house. In this article, we explore the true costs of using a marketing agency vs doing it in-house and what you should consider when making these all-important budget and value-outcome decisions.

Costs of an Agency

Agencies have a variety of billing models, the detail of this can be read in our blog Different Agency Billing models and their impact. However, the primary difference between using an agency and doing it in house is that you pay a premium for the time spent by a person in the agency. This covers their business costs, as well as the profit of the agency. If you look at it this way, it would always seem ‘cheaper’ to employ someone direct over employing an agency. However, agencies have been thriving for 100+ years (first advertising agency was actually founded in 1786) and they are used by everyone from the smallest to the world’s largest businesses so the answer must be more complex.

Basic Cost Differences Between In-House and Agency

The cost of an agency is usually straightforward and won’t come with any surprises as they bill you for the amount you agreed to pay. However, the costs of internal marketing resources are actually more complex and often hidden. You should never see the cost of an internal marketing resource as their salary alone.

Outlined below are just some of the costs involved, with a breakdown of what you could be expecting to pay per month/year for one full time staff member.

• Salaries – the average salary for digital marketing jobs is £37,500 per year or £3,125 per month
• Employer pension contributions – minimum of 3% of an employee’s salary at the basic rate (around £1,125 per year)
• National Insurance – all employers are required to contribute towards employee NI contributions. The rate is currently 13.8%, which could equate to around £5,175 per year
• Training – most UK companies invest around £1,000 per employee, per year, but in a fast growing area like digital marketing, more training is going to be needed to stay relevant.
• Bonuses – whether or not these are offered are at the company’s discretion but government figures put the average bonus pay at 6% (this would equate to £2,250 per year if paying the average salary for a digital marketing job)
• Equipment and Office Space – for a completely new hire, the IPD Blue Chip Office Index estimates the total property cost per occupant at £4,800 which includes paying for office equipment such as laptops. Unless you are 100% remote, then each new employee puts a burden on your office space costs which need to be included.
• Recruitment – finding the best talent can take time and recruitment costs can quickly add up. Cost per hire will vary between sectors but you need to think about everything from time spent by the hiring manager, interview time, loss of productivity through probation, and cost of firing if the person doesn’t perform.
• Other employment costs to consider – holiday pay, sick pay, maternity & paternity pay, any benefits such as private healthcare all have a cost.

Based on the above, the actual cost of hiring a new employee could be almost double their headline salary figure in the first year alone. Second year onwards, it is still going to be significantly higher than that headline salary cost.

Practical Differences Between In-House vs Agency

What are the practical differences between the two options? We have broken these down into key areas.

Resource Capacity and Allocation

You get more time for your money from an in-house person as you don’t pay a premium for their time. So in-house wins on a hours per pound measure. However, the resource that in-house person delivers is limited to their individual skillset. This means that if you need help with X not Y, then your internal resource may not be able to help you.

Skills and Specialisms

Leading on from the above and the fact that in-house people’s skills are limited to those of the individual, it means that in-house teams tend to be more generalist focused. These people can turn their hands to multiple areas of digital marketing. The downside of this approach is that they are not going deep into any one area.

They are also likely to struggle staying up to date in the fast-moving world of digital marketing as they don’t have time to keep up with best practices in multiple areas of digital marketing.

For example, technical SEO is very different from content strategy or marketing automation – one person may know about all three areas but they can’t be an expert in all three as they are too diverse. This is where a good agency starts to really deliver value as they can afford to have specialists in specific areas who know how to get the very best results from their deep and growing knowledge.

Breadth of Employee Knowledge

As well as technical specialisation, the other advantage of an agency is their experience of different businesses and approaches. By their nature, most agencies’ team members will be working across different clients. This means that they are constantly getting exposed to diverse situations, techniques and approaches. This diverse and dynamic experience – especially if it has been gathered over time – means that they are often better able to bring creative and effective solutions to challenges. There is however a flip side to this.

In-house team members are going to have a much more in-depth knowledge of their company’s products / services and the market they operate in. Specialist syntax, market nuances and competitor strategies are examples where an in-house person should have superior knowledge. This means that in certain situations, i.e., particular marketing management and perhaps focused content creation, the in-house person’s business specific knowledge is more powerful than bringing diverse knowledge to the table.

The way to remedy the potential lack of business specific knowledge from the agency is to work with them for extended periods, something Innovation Visual has been very good at. In fact, we have been helping some of our clients with marketing for the best part of a decade. Sometimes, we’ve even worked with a client longer than any one person in their own marketing team!

Knowledge and Learning

Extending on from the difference in knowledge patterns and expertise, it is important to compare the learning differences between in-house and agency. A good agency like Innovation Visual invests a lot of time, resources and money in developing the knowledge and skills of its team. This becomes a differentiator and the source of our value. It is much harder for an in-house marketing team to justify the same high level of training expenditures. This means that over time, in-house people’s skills might become stale. This becomes a reason to move roles for the individual as they’ll want to keep learning.

Difference in training budget can be tackled by simply increasing the budget but one difference cannot be tackled; the knowledge exchange between team members. If, for example, you have an SEO person in your team, that’s great. But a decent sized digital agency will have multiple people involved in SEO. So each individual within the agency learns each day by working with other SEO focused people and especially their experienced department manager. By contrast, your SEO person can only learn from external SEO resources and won’t be collaborating with others on solving specific problems – simply one way absorbing generic SEO material. As you can see from this example, the concentration of specialist knowledge within a digital agency becomes a spiral of knowledge gain in comparison to isolated in-house people.

Evolving Business Requirements

Just as digital marketing changes, a business’ needs around digital marketing will evolve over time. Sometimes this is quite obvious with areas such as CRO projects or ad-hoc campaign creatives. Turning to an agency at these points is common. However, there are some less obvious scenarios, although with a more significant downside to get wrong. If we look at an example:

You have just bought a new marketing and sales technology platform like HubSpot. It’s amazing and there are lots to do. Data migration, integration set-up, workflows, templates, campaign structures, the list goes on. That’s a lot of work and the temptation is to employ someone to tackle all of this work. Taking aside what has already been mentioned in this article, have you thought about how the work is actually composed?

Great marketing and sales technology tools like HubSpot, MailChimp, Klaviyo are designed for ease of use. It is true that you need deep expertise for set-up and implementation of the foundation elements. However, the volume of expert skill that you need after the early stages of use is much lower.

If you look at the above example, the work that needs to be done is mostly foundation work. Once this is done, what is your expensive in-house HubSpot specialist going to do? They will likely end up having either a light or lower-skill-level workload, or both! Two problems for you with that: 1) you are now overpaying for this resource vs need and 2) the employee is going to get bored of their role as it’s no longer challenging and leave. Leaving now causes another problem related to knowledge transfer…

In-House vs Agency – Which Retains Specific Knowledge Better?

In the above example, the expert employee gets bored and leaves the in-house role. This is common as once the initial challenge is resolved, the work becomes mundane. Not only has the business paid for that person’s recruitment, training and getting up to speed but now the employee walks away with the knowledge.

As the sole specialist in the company, they never had to explain the details of their work to a colleague because no one else worked in that area. This poses a significant risk, as when they leave, you might not fully understand what they've set up in a crucial aspect of your digital marketing, which you clearly considered important since you hired a specialist for it!

Contrast this with an agency with specialists. They are paid to provide you with this specialist knowledge so they not only will have had multiple people working on your account to ensure that knowledge is held at the agency level, but if someone does leave the agency, they will go to great lengths to ensure that no client specific knowledge leaves with them as they will still need to continue to service the client’s needs afterwards.

It is therefore safer to get an agency to retain important knowledge about your business in the long run. Obviously, the caveat here is don’t break up with your agency; however if you do, you can request the full documentation as part of their handover.

Management and Coordination

In-house skills really come into play in the coordination of the marketing activities. It seems obvious, yet having an excellent generalist with management skills will be the glue that sticks everything together. While fractional CMOs have become more common, these are not really an agency model, they are effectively a part-time in-house role. An agency cannot do what an in-house marketing leader can do in terms of liaison across stakeholders and understanding all of the moving parts. At Innovation Visual, we actually look to ensure that there is a strong internal marketing leader within prospective client organisations as this is a sign that we will be able to be effective working with an organisation.

Ideas & Best Practice

An agency will continuously offer new ideas and innovation that you may not have thought about in-house. They usually have experience across multiple sectors, can recommend tried and tested tactics that will deliver results against your objectives and ROI. In the same vein, they should be able to advise on where you could be wasting budget and what not to do.

Templates & Processes

Numerous templates and processes will be required when executing on your digital marketing strategy. From workflows to keyword maps and SEO audits, agencies will do the heavy lifting for you which otherwise would take time and money to develop in-house.

Access and Cost of Software and Tools

What is often overlooked in the in-house vs agency comparison are the tools you need to provide if you are to bring a specialist skill in-house. One of the benefits of an agency is that they will typically bundle into their pricing model the costs of the tools and software that they use. This is important not simply because these tools can often cost thousands per year, adding significantly to having a digital marketing specialist in-house, but also because of the range of tools. Agencies have to provide the very best of expertise to their clients and often they will be running multiple tools in an area. This means they will have access to more technology support, whether that means you get more data or you get more specialised technical systems supporting your performance gains.

Again, there is a clear cost factor in this area which leans towards using an agency as they can typically spread these costs over multiple clients and so the tool cost simply becomes a component within their day rate. Therefore, you can get ‘better’ or ‘more’ with an agency engagement for the skills and expertise over an in-house appointment and this leads to the most important and decisive factor in any decision whether to in-house or use an agency – performance outcomes.

Agency vs In-House – the Big Questions – Performance Differentials

The ultimate decision of a marketing or revenue leader is the question of the outcomes obtained per £1 of input. Often, inexperienced leaders get drawn into reviewing the in-house vs agency question on simply a cost basis. As has been highlighted through this blog, there are significant differences that will impact the performance outcomes of the business based on its choices.

Validating Performance Differentials

How do you actually predict the performance differential of a decision to in-house vs outsource a skills area that your business needs? Well, it’s not straightforward but you can retrospectively measure outcomes after the decision.

For example, your paid media management might be the simplest to evaluate. You can take all of the input costs on each side of the equation and compare these against the outcomes created. Remember to take the outcomes as close to the profit as you can. For example, don’t simply evaluate cost per lead, look at cost per MQL / SQL, revenue opportunity and closed won revenue. This should give you a better picture of the relative effectiveness of your activities. Make the comparison as accurate as possible; if one team is delivering a high number of leads but they’re lower quality (a lower proportion make it to SQL), then factor in the additional cost of the sales team qualifying out those poor quality leads.

For ecommerce, don’t simply look at revenue but factor in the margin created. It might be that one team generated good revenue but reduced the margins by running lots of discounting campaigns. Or they promoted a lower margin category or one that is less likely to get repeat purchases, lowering the Customer Lifetime Value (CLTV). These things need to be factored in for an accurate comparison.

As we know, the financial impact of some digital marketing skills is harder to isolate from other activities, therefore making it difficult to make a judgement on empirical evidence. In these cases, look at the defining factors of the performance.

How competitive is the space for your digital marketing?

The more competitive the space, the more you will need high-end knowledge and innovative strategies to make an impact and drive results. Here, a good agency should drive better results than in-house teams and that’s why the big companies in competitive spaces use agencies extensively.

Do you need high volume of effort?

For example, do you have an ongoing need for high volumes of a certain type of content? Here, it is likely an in-house person will be more effective at driving the performance as long as they are suitably skilled and experienced as you get more time input per £ of cost.

How complex is the area you need expertise in?

You need to have a good look at the component parts of the resource need here. For example, if you’re setting up HubSpot, you might think it’s a volume task as there is lots to do but actually, the more significant performance factor is its complexity. Think data migration, integrations, audience segmentation, data and reporting, workflows for nurture, workflows for sales handoff, workflows for onboarding / client success / service. Suddenly, HubSpot set-up is a complex set of different tasks needing different skills. Here, a good agency will give the best performance outcomes by having multiple specialists in the different specific HubSpot areas, like Innovation Visual does.

How permanent is the skill requirement?

Is the resource needed for the long term or short term? From a performance viewpoint, if it is a short-term requirement, then it will be inefficient on time to get someone up to speed and your skilled agency should be handling the requirement as they should be able to deliver results faster and more effectively. If your resource need is going to extend to years, then the initial performance downside of in-house could be overcome in the longer term with the increased company and market specific knowledge. The decision will then depend on the other factors in this list.

Do you need doing or coordinating?

From a performance viewpoint, internal coordinators are likely to be superior than an agency. There are exceptions but the internal resource will be able to liaise across the business as well as with all the external parties involved. When the need is centred around doing the work, you can refer to the other factors as to the most likely best performance outcome.

Is the skills requirement less than a full-time job?

If any of the specific skillsets needed are less than a full-time job, it should probably be tackled by a good agency. Indeed, it is unlikely you’ll find a candidate who is prepared to take an in-house role with multiple, differential skills that they are a true expert in. Trying to in-house a role like this will inevitably lead to a compromise in one or more skills areas, and this will then impact performance.

The True Cost of Reduced Performance

Lower than achievable performance doesn’t just affect higher costs, it also costs you the opportunity of beating your competitors. If you don’t get the SEO performance, you gain rankings more slowly and each month, your competitors will be getting the traffic from those keywords you have yet to rank for. In paid media, your higher cost per SQL and worst ROAS mean that you are leaving revenue on the table for your competitors to take. If the lack of performance is in your MarTech set-up, your workflows will convert less, your CLTV and your revenue per contact will be suppressed meaning less money to invest further in marketing.

These performance deficits will hit all companies but those that want to grow fastest and scale in developing markets will be worst hit. In markets with loyal customers and intense competition for market share, choosing to bring skills in-house to save money can backfire if the performance turns out to be worse. This can have long-lasting consequences, as competitors onboard clients more quickly, and the business fails to reach its full potential. In SaaS, the rule of 78 applies to that money you didn’t get. For every £1 of recurring monthly revenue, you should end up with £78 at the end of the year. If you miss out on this revenue, the compound impact of poor performance is multiplied. For ecommerce, this could affect customer lifetime value or subscription models negatively – failing to acquire a customer when they were available will make them much harder and more expensive to convert once they’ve bought from your competitor.

Source: HubSpot 

Partner with an Expert Digital Marketing Agency for a Hybrid Approach

Choosing a digital marketing agency or going in-house is clearly a complex question. While costs are under pressure, these need to be viewed in their entirety to make an informed decision. There are very significant differences in the way people operate in an agency vs in-house. From ready-made processes that deliver success through to the depth of knowledge being applied between multiple specialists working together, it is naive to give the same weight to an hour of in-house time vs. agency time. Some areas absolutely need to be resourced through in-house team members. However, smart marketing leaders will give careful consideration and thought to each digital marketing skill the business needs to maximise the outcome per £1 spent.

Whether your company is large or small, Innovation Visual can provide just the expertise your business needs. With over 20 experts in fields including MarTech, SEO, content, video, PPC and data & analytics, we’ve worked with UK and global businesses in a wide range of sectors from service industries to technology, retail, and manufacturing.

We are happy to discuss your resourcing needs openly and help you obtain the expertise you need in the most efficient way. Get in touch with our team to discuss your requirements.

Not quite ready to make contact? Check out our latest case studies to see how we’ve helped businesses like yours deliver results.