Is a Social Media Marketing Agency Profitable? | 4 Reasons SMMAs Fail

January 23, 2023

Considering the fact that BILLIONS of people spend HOURS on social media platforms every day, maintaining a solid social media presence is an essential aspect of online marketing for modern brands. As a result, countless social media marketing agencies (SMMAs) have sprung up in recent years to meet this need. Despite the popularity of the business model, factors like rising paid social media ad costs and intense competition driving down agency margins have left many aspiring online entrepreneurs to ask, is a social media marketing agency profitable at this point or is it better to go with a less competitive online business model like local lead generation?

In 2023, a social media marketing agency can be very profitable. However, many social media marketing agencies are making critical mistakes and failing. In the following article, we break down how much you can make with a social media marketing agency, 4 reasons many of these businesses are failing and how to avoid it, common services your agency can offer, 7 industry insights for 2023, and some actionable tips for starting and scaling your social media marketing agency to incredible heights!

Is a social media marketing agency profitable?

A social media marketing agency is generally a profitable business because it has low overhead costs and high upside potential. However, like any entrepreneurial undertaking, profitability depends on the owner's ability to successfully run the business. If you have no experience running a business and make basic mistakes like not calculating break even to know how much you can spend and how much you should charge, your agency probably won't be profitable. On the other hand, if you're starting your social media marketing agency with some digital marketing or business experience, you have a good shot at being profitable. 

How much does a social media marketing agency make?

According to Agency Analytics, social media marketing agencies make between $1,500 and $25,000 for a single client per month. Data shows that the average digital marketing agency has a profit margin between 11% and 20%. Depending on how you outsource the work that needs to be done and scale your agency, that's some serious profit potential!

Let's use an example of a realistic 15% profit margin and just five clients paying you a modest $4,000/month for your services. In this scenario, your agency would earn $20,000/month, or $240,000/year in revenue. Your profit for the year would be $36,000. 

4 Reasons social media marketing agencies fail

1. Lacking the knowledge to execute

Social media platforms may be easily accessible, but social media marketing isn’t easy. It takes things like extensive marketing knowledge, technical understanding of platforms, and the ability to catch attention with persuasive copy and captivating visuals to be successful. Many people sell a social media marketing agency as a get rich quick scheme, but you’re not going to get rich or even be profitable unless you know what you’re doing and provide value to your clients. You can use social media marketing courses to learn if you don't already have the skills. 

2. Bad at sales 

When you run a social media marketing agency, you need to sell your business to potential clients. Even if you are a master at growing an Instagram account or running Facebook ads, your business won’t make a penny unless you can convince companies you’re their best option. Learn to be good at sales yourself, or hire a good salesperson. 

3. No leads at top of funnel

Just because you have some clients contracted does not mean they will stick around forever. In fact, they probably won’t, which is why you need to constantly be looking for new potential clients. Your social media marketing agency should have strategies in place to bring new leads in regularly, like by running paid ads or sending out a regular email newsletter with relevant marketing information for businesses in your targeted industry niche. 

4. Ignoring client communication needs

Overlooking the importance of having a regular communication schedule with your clients can cause them to stop working with you. If you don’t tell clients what you’re doing for them and the results accomplished, they’re likely to question why they are paying you. It’s essential to set a regular schedule to meet with your clients and the social media marketing campaign results so they understand what’s going on and know you’re actively working on their behalf. Each client has different communication needs, so you may need to spend more time communicating with some clients than others. 

Which digital marketing services can a social media marketing agency offer?

Social media strategy

One of the most important yet challenging aspects of social media marketing for brands is coming up with a social media strategy. A social media agency has the experience and expertise to analyze the market and choose the best social channels to reach the target audience, what kind of content should be posted, and how often to post the content. Your client will provide you with their business goals, and it’s your responsibility to craft an effective strategy to help accomplish them.

Content creation

You can’t attract an audience on social media without content. Copywriting, graphic design, photography, and video editing are skills social media agencies use to create captivating social media posts. 

Community management

Using social media to attract an audience is great for generating brand awareness, but building a community and letting engaged customers know your brand is listening is also important. To serve this need, many social media agencies offer community management services. These include actions like responding to potential customer questions through instant messenger and post comments, or setting up and maintaining private groups for targeted communication. 

Paid social media campaigns

Running a paid social media campaign through a social channel like Facebook advertising is one of the most common services social media agencies offer. With this digital marketing service, agencies handle tasks like managing ad spend, coming up with the angle and content of the Facebook ad, and analyzing the market to set effective targeting parameters. Fortunately, there are many great Facebook ad courses available to learn this skill from. Beyond Facebook, Instagram, Twitter, TikTok, and Pinterest are other popular platforms for paid ads.

Lead generation

Another practical use of social media marketing is for lead generation. According to a study within the last few years by B2B research firm Ascend2, marketers overwhelmingly consider social media the best strategy for improving lead generation quality.

Social media monitoring

A social network is one of the most popular places for customers to talk about brands, which is why social media monitoring is used to identify public perception about brands, including opinions about the products and services they offer. Social media marketers use social listening tools like Hootsuite to monitor brand mentions so brands can take action when necessary.

Influencer marketing

Although creating social media content and promoting it through the brand’s social media account is effective, leveraging the audience and promotional abilities of social media influencers is another winning strategy. With influencer marketing, you coordinate partnerships between your clients and social media users with large, targeted audiences. For example, the most popular Instagram influencer of 2022 is the soccer player Cristiano Ronaldo, who promotes brands like Nike and Binance on his social media page. 

Contests/giveaways

Social media is perhaps the most effective channel for running brand contests or giveaways to generate brand awareness and drive interest. With a giveaway, you have users complete a task like sharing a brand post to their story feed or following the brand’s social media account for the chance to win a prize. A contest gets the audience a bit more involved by requiring them to get creative and submit something like a picture or design they created for the opportunity to win a prize. By coordinating either of these, a social media marketing agency can generate some impressive results for their clients.

All-inclusive social media management 

While some social media marketing agencies specialize in one or a few of these social media service areas, the most experienced agencies often offer the full package and can therefore charge clients the highest rates for managing every aspect of their social media marketing strategy.

Another more passive digital marketing service you can make money with

Although a social media marketing agency can be very profitable, it requires constant attention. You need to regularly communicate with your clients to justify your marketing efforts, tweak campaigns as algorithms change, monitor scheduled posts to ensure they are published daily, and so on. On top of that, you have to attain expertise in multiple social media channels. 

That’s why we prefer the location lead generation business model over a social media advertising agency. With local lead generation, you use search engine marketing tactics to focus on ranking websites on Google to generate leads for local businesses. You analyze the market to find a business niche where there’s lower digital competition on Google, use local SEO strategies to get business websites to rank at the top of the search results page, and then sell the valuable leads to a local business in the area for hundreds to thousands of dollars each month. 

The value your business provides to your clients speaks for itself because the leads you generate turn into paying customers for them at a high rate. Furthermore, unlike other lead generation methods that use paid traffic, a local lead generation relies on organic traffic from the internet so the ROI is substantially higher for you. Once you get a website to rank and secure a monthly client to forward the leads to you, it’s mostly passive income from there. Clients will usually stick with you for the long-term because they make more money and they also want to avoid their local competitors getting the leads from you instead. 

7 Interesting insights for social media marketing agencies in 2023

1. People spend 147 minutes on social media every day

According to Oberlo, the average person spends approximately 147 minutes on social media every single day! That’s a major chunk of our modern lives spent browsing through and interacting with the digital world. Therefore, social media marketing is an effective advertising method that targets people where they spend considerable time. 

2. 4.7 billion people use social media

A 2022 report by DataReportal reveals that the majority 59% of the global population, or 4.7 billion people, use social media. When compared to even the most iconic advertising space of traditional marketing in New York’s Times Square billboard, which has an audience of 350,000 people daily, the potential reach of social media is extraordinarily higher. With just a single social media platform like Instagram or TikTok, you can reach millions of people around the world.

3. The average person uses 7 social media platforms each month

Although Facebook is still the most popular social media channel today, there are many other popular platforms like Twitter, TikTok, or Reddit. In fact, the average person visits 7 different social media platforms each month. Social media management companies and brands can benefit from targeting a few of these effective marketing channels where the target audience hangs out.

4. 55% of consumers use social media to find new brands

According to the State of Social Media report by SproutSocial, social media is a common medium for discovering brands. Without a solid social media strategy in place, companies are missing out on one of the best marketing channels for spreading brand awareness.

5. 68% of agencies use social media to find clients

SEO and marketing news site, Search Engine Journal, highlights that 68% of marketing agencies find new clients through social media. Social media marketing is a superb skill to sell to clients, but it’s also an incredible opportunity to find clients for your business. Obviously, if you run a social media marketing company, your social media accounts should reflect the abilities of your business.

6. 80% of business executives want to put more money into social media marketing

According to SproutSocial, the majority of business executives believe investing additional resources into social media marketing is essential. Therefore, there is a strong demand for social media marketing experts and a desire to pay them. 

7. 92% of marketers agree video is important

Recent data from HubSpot shows that 92% of marketers see video as a necessary part of a marketing strategy. Social media marketers have access to various video sharing platforms like TikTok, Instagram, and YouTube. Right now, TikTok is an extremely intriguing option for social media marketers because of its superior algorithm that does an excellent job of recommending videos based on user interest and sending videos viral. For brands who want to market to teens specifically, a survey found that around 66% use it and 1 in 6 out of that age group reported watching TikTok videos almost constantly.

Is a social media marketing agency worth it? 

For many aspiring online business owners, a social media marketing business is worth starting. Social media marketing currently accounts for 33% of all money spent on digital advertising activities. That's a major chunk of the digital marketing pie and proof that social media marketers are highly valuable to companies. Furthermore, social media marketing has a bright future as more users sign up for social media and continue to spend greater amounts of time on these platforms. 

Tips for starting a profitable social media marketing agency

Hire talented people

When you start your own social media agency, you need to know your role in the business. If you try to do everything, the quality of your service will suffer and you will probably get burnt out. Embrace being the leader of your digital agency to go get clients and hire others to help you carry out the work for those clients. 

Pro strategy for hiring with no capital: First, focus on signing a client. You can have your client pay you at the beginning of the month and then hire a freelancer to do the work and pay them at the end of the month. 

Charge by the hour

Charging hourly ensures you get paid fairly for your time as a social media marketer. However, not all tasks should be compensated equally. Running paid ads for social media certainly takes more expertise and effort than hashtag research for posts. Therefore, it’s best to base your hourly rate on the work you do the most, or even charging a different rate depending on the task you're doing.

Package your services

Packaging services together allows you to give your clients a better value, while generating more revenue for you. 

Expand into other adjacent services

Your clients are likely to have digital marketing needs outside of just social media. Offering other related digital marketing services enables you to earn more. For example, you already need to create some content as a social media marketer, so you could also offer your clients some content marketing services like video production or graphic design as well.

Partner with other agencies

Partnering with agencies who specialize in offering other services outside your realm of expertise has multiple benefits, such as:

  • Enabling you to offer more value to your clients
  • Receive more leads and clients
  • Earn a finders’ fee or commission for the work you hand over 

Run a referral program

If you want to grow your agency, running a referral program for current clients is a great way to increase client satisfaction and get new clients. 

Conclusion

If social media sounds like the business opportunity for you, here's how to start your social media marketing agency. However, make sure you do your due diligence by researching some other online business opportunities as well. You may confirm social media marketing as the best option for you, or you may find other opportunities like affiliate marketing or local lead generation are a better fit for your goals. No matter which digital marketing strategy or online business model you employ to make money, you need to keep your goals in mind every day and give consistent effort if you want to reach them. 

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Ippei Kanehara
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$52K per month providing lead generation services to small businesses

Ippei.com is for digital hustlers, industry leaders and online business owners.

His #1 online business recommendation in 2023, is to build your own lead generation business.

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