Agency vs. In-House: What's Right for Your Business?

Updated August 16, 2022

Should you invest in building an in-house creative team? Or should you just hire an external agency? Find out the answer in this guide.

It’s an old debate:

In-house marketing vs. agency.

As with most things in business, there is no one size fits all.

But to help you make the best decision for your business, we’ll discuss the pros and cons of in-house marketing vs. agency.

Some businesses will benefit from hiring a digital marketing agency as opposed to investing in an in-house creative team. Others will see much better results from doing the marketing in-house.

Besides figuring out what to do, you need to know when to do it.

Teams to Agencies: The Changing Nature of In-House Creatives

You’re already familiar with the in-house creative team model, which is essentially  a group of full-time creatives who work on internal projects.

While such teams have been a part of business since before the birth of modern advertising, things are changing. Fast.

What’s happening is that these teams are becoming more sophisticated, more organized, and more expansive in their brief. They’re operating as more than just a collection of creatives. They have project managers, art directors, production experts, and even account executives.

In other words, they operate exactly as full-fledged agencies.

The key difference? They have only one "client" - your company.

More and more businesses have been evolving from internal creative teams to in-house agencies. An ANA survey found that the number of businesses with in-house agencies was up to 58% in 2013 from just 42% in 2008.

By 2018, this number was up to 78%.

Technically, these are still “creative teams”. But their organizational structure and scope resemble that of an agency.

And fittingly, these pseudo-agencies have been chewing away work from full-fledged agencies. ANA’s 2018 survey found that in the last 3 years alone, 70% of survey respondents had moved key creative work entirely in-house. We see the trend: more businesses are going the in-house vs. outsourcing marketing route.

Why is this change happening?

Three factors:

• Shrinking ad budgets means that marketers have to cut costs. One way to do that is to remove the agency margin from marketing projects.
• The shift towards the lower budget, more intimate marketing methods - content, social, etc. - favors the in-house agency vs. external agency model, as in-house agencies understand the company brand deeply.
• Easier access to data through Google Analytics, Facebook, YouTube, etc. makes it possible for in-house agencies to be as effective as their external counterparts.

As budgets have moved from external to in-house agencies, there has been an equivalent growth in their size and sophistication. This growth has required teams to organize around more formal structures, i.e. the internal agency.

This brings up two questions:

• How - and when - should your “internal creative team” mature into an “in-house creative agency”?
• How should you decide between in-house marketing vs. outsourcing?

I’ll answer both of these in the next section.

External vs Internal Creative Agencies

The in-house agency model isn't necessarily better than external agencies. And vice-versa.

This is a "horses for courses" decision. You'll have to pick the right model based on your needs and budget.

Having said that, both external and internal creative agencies have their own advantages and disadvantages. Let's compare them on cost, capabilities, and compatibility.

Capabilities

Capabilities - or skills - is the biggest point of difference between external and internal creative agencies. It’s also the reason businesses continue choosing specialized agencies.

On the capabilities count, you can compare the two models as follows:

Internal creative agencies

• Your in-house creative agency understands your brand intimately. However, it has only worked on one brand - yours. This limits the breadth as well as the depth of their skills.
• They have intimate knowledge of your business and its industry. They understand your product, people, and customers. This helps them create campaigns that are tailor-made for your business.
• At the same time, internal agencies can struggle to extract themselves from the brands that employ them. This creates a lack of perspective which can affect the creative outcome.
• Internal employees often miss out on industry trends since their exposure is limited. This can result in campaigns that feel “last season”.

External agencies

• Creatives in an external agency work on dozens of brands, often simultaneously. This leads to rapid cross-domain skill development.
• External agencies are exactly that - external. They can interview your employees and survey your customers, but they’ll never truly understand your business the way your own full-time staff does. Their industry knowledge, thus, is always second-hand.
• At the same time, being “external” gives these agencies the distance to understand your brand and its problems. This makes for better judgment.
• External agencies make their bread and butter by being “on trend”. Hire one and you can be assured that your campaigns will be cutting edge.

Chipotle’s recent “Chipotle for Real” campaign was developed entirely in-house (Image source)

Takeaway

An external marketing agency is better when it comes to sheer skills and market knowledge. However, they can struggle to understand your brand and its problems.

My recommendation is that you should use your internal creative team for work that doesn’t need to be cutting edge or skill-intensive - say, social media posts. For big budget work that needs to be on-trend, stick to specialized external agencies.

Cost

The cost question is a little tricky. Agencies can seem more expensive until you factor in the long-term costs associated with a full-time employee.

At the same time, building a full-time in-house team requires significant upfront resources. You need to factor in hiring costs, benefits, and attrition rates (which are historically among the highest in creative roles).

Comparing hourly costs

Nearly 70% of agency-client contracts are on an hourly pricing model. If seen in isolation, this can make the agency seem prohibitively expensive.

A good way to compare these costs is to translate your employees’ annual salaries into hourly figures.

Most agencies factor in 5 weeks off (including holidays) when calculating their hourly rates, i.e. 1,880 available hours. They also assume between 70-80% “billability” - the number of available hours that can be billed to clients.

Thus, you get about 1,500 billable hours. A designer with a $75,000 salary would have an hourly rate of $50/hour.

An agency will almost always be more expensive than this rate since it has to factor in its margins (around 15-20%) and operational costs. For the same talent, an agency might bill you at $75/hour instead of $50/hour.

In other words, agencies are usually more expensive than hiring full-time talent.

That said, the cost calculation is made difficult by the upfront costs, attrition rates, etc. associated with full-time employees.

Keep the following in mind when comparing external and internal creative agencies:

• Hiring costs: As any tired recruiter will tell you, hiring for creative roles is slow and expensive. For in-demand roles such as developers, the cost can be as high as $31,970. For a full-fledged internal agency, the upfront cost can run into five-six figures.
• Attrition rates: At nearly 30%, the attrition rate for agencies is among the highest in the world. Of course, your own full-time employees won’t jump ship so often. But if you’re building an in-house team, keep this in mind - it can add substantially to your costs over time.
• Opportunity costs: Time you spend hiring full-time employees is time you can’t spend on more productive tasks. The time to onboard and train a new hire can stretch into several months. This creates a substantial opportunity cost - something you don’t have to worry about when hiring an agency.
• Benefits: Of course, if you hire a full-time employee, you also have to pay for their benefits - material and otherwise. If you hire an agency, it will handle all the benefits and perks.
• Scalability: Agencies have scalability built-in. If you want  additional resources, the agency can tap into its wider employee pool. But with an internal team, you have to either find contractors (which has its own costs) or hire more full-time employees.
• Flexibility: Creative requirements are seldom constant. You’ll have to expand or shrink your resources as necessary. An agency gives you the flexibility to reduce your exposure if you’re going through a lean phase. But with an internal team, you have to pay full-time salaries, regardless of how much work you have for them.
• Agency search costs: Hiring an agency isn’t entirely “free”. You have to incur an upfront cost in finding the right agency in terms of lost productivity (especially for any senior management involved). In some cases, you might also hire a consultant to help with the search, i.e. agency search consultants.

 Clients moving services in-house and competition for talent remain the two biggest concern for agencies (Image source)

Takeaway

The upfront costs of building an internal creative team can be substantially high, especially if you have no creative talent on payroll currently. There is also the issue of scalability and opportunity cost.

That said, the actual cost tends to be lower than agencies. You also get more control over the talent, though you do sacrifice flexibility.

Compatibility

The third ‘C’ - compatibility - is hard to quantify. This defines how well-suited your business is for the agency/internal team model.

Several factors affect your compatibility, such as:

1. Business type

Some businesses have an inherent bias toward external agencies. Typically, these are businesses that rely heavily on expansive, creative campaigns. Or they’re businesses that operate in multiple markets.

Think of a company like Coca-Cola or Ford.

Coke spends nearly $4B on advertising each year. The kind of campaigns Coke is known for - highly creative and localized - is hard to pull off with an internal team. They would therefore go for an advertising agency vs. in-house.

Coca-Cola’s multi-billion dollar zeitgeist-defining campaigns s are mostly handled by external agencies (Image source)

On the other hand, another major brand - Chipotle - recently brought all its advertising in-house. Because, as its CMO says:

‘"We've looked at TV; we've looked at it all...Chipotle was built on word-of-mouth marketing. We're focused on reigniting word-of-mouth marketing, rather than big advertising campaigns."’

So evaluate your business. If you compete in an undifferentiated market - like Coca-Cola - you’ll have to be creative. In such a case, it might be better to get outside expertise.

However, if you do small, mostly online campaigns, it might be worth it to stay in-house.

At this point, it’s worth pointing out that a creative agency functions in a different role to a production company. In this case, it’s not a creative agency vs. a production company. You need one or the other, or both. A creative agency plans the material for the production company to produce, e.g. an ad broadcast. 

2. Experience and Expertise

Businesses with a large existing pool of creative talent will find it easier to go in-house. After all, the biggest hurdle to building a creative team is the upfront hiring costs.

If you already have a team of designers, developers, and other creatives, you can easily expand them into a complete agency.

Evaluate where you currently stand. Ask:

• How many creatives do you currently have on payroll? Do they have sufficient bandwidth to be turned into an internal agency?
• Do you have any prior project management experience?
• Have you worked with digital marketing agencies in the past? If yes, what were your takeaways from those relationships?
• Do you have access to freelance creative talent? Can you scale your resources if necessary?
• What is the status of your recruitment pipeline? Can you hire more people when required?
• Do you have any existing relationships with agencies? If yes, what sort of contracts do you have with them?
• Have you brought any creative campaigns in-house in the past? How did they perform, especially when compared to agency-led campaigns?
• On a scale of 1-10, how would you rate your creative team’s experience and expertise?
• On a scale of 1-10, how satisfied is your senior leadership with the performance of your creative team?

Making the Right Choice for Your Business

“Agency” or “Internal team” isn’t really a binary choice. You don’t have to choose one or the other. You can easily adopt a hybrid model where some work is handled in-house, some by outside agencies.

What you have to figure out is how to segregate this work and what to invest in.

The first step in answering these questions is doing an internal audit. Figure out the following to see where you currently stand:

• Existing talent: List the number and type of creative talent you currently have on your payroll
• Existing workload: What kind of work does your creative talent currently engage in? How much availability do they have?
• Organization structure: How are your creative roles currently organized? Are they embedded in individual departments, or do they operate independently?
• Growth: How many new creative roles are you hiring/firing each month? What is the growth projection for this role in the near future?

A sophisticated, growing creative team will find it easy to slip into the internal agency role.

 In-house creative teams are usually lean, often numbering less than 5 members (Source)

At the same time, evaluate your current and future creative needs. You don’t want to hire full-time people for one-off projects - that should be reserved only for recurring, regular work.

Figure out the following:

• Recurring marketing work: List the kind of marketing work you do on a regular basis - social media posts, promotional emails, etc.
• One-off projects: Do you have any one-off creative projects planned in the next 12 months - a TV campaign, a new website, etc.?
• Future campaigns: How do you expect your marketing needs to change in the next 5 years? What kind of campaigns do you expect to do? How is your marketing budget expected to grow/shrink?
• Talent cost: How much does it cost to hire full-time talent for your primary marketing work? What are the freelance costs for the same?
• Onboarding time: How much time does it take for a new hire in your target creative specialty to be productive? It’s better to get outside talent if the onboarding time and costs are high.

Most businesses will find it easy to bring low-level and recurring creative work in-house. You don’t have to hire outside agencies to create your social media promos or weekly emails. The expertise for such work is also usually affordable and easy to find.

On the other hand, large, one-off campaigns, especially in mediums businesses rarely have in-house expertise (such as TV commercials) are best handled by outside experts. Since this is one-off work, it makes little sense to get full-time people to do it.

An often overlooked aspect of this analysis is understanding your own “company DNA”. Creativity comes naturally to some businesses. Some others struggle with it, especially if it’s far removed from their core expertise.

Keep this in mind when you make your decision. Building a full-fledged internal creative agency puts you in the “creative market”. This can change who you are as a business. If that’s not something you want to specialize in, I suggest getting outside help.

Over to You

Every business is different and there is really no one-size-fits-all solution. Not every business needs an outside agency. Nor should every business build an internal creative team.

Be objective in your analysis. Evaluate where you currently stand and future needs to figure out where to invest in.

If you do decide to bring your agency in-house here’s a piece of advice:

Your in-house creative agency will function optimally if it utilizes marketing project management software. Agencies that attempt to use disparate systems to manage their projects, (e.g. spreadsheets for number tracking, a separate time tracking tool, and various communication tools) waste a lot of time and resources on things that project management software can do for them automatically.

Workamajig’s all-in-one project management platform is built specifically for in-house and external creative agencies. Smooth the path to an in-house creative team with project management software that will both give your team a super smooth start and save time, money, and headaches.

See why in-house teams are successful when they’re built on Workamajig.