Every once in a while we get a client that wants to bring SEO and PPC in house. I know what you’re thinking....why in the world would anybody ever want to stop working with DTC? Crazy, I know. Well, after working with us for a long time, clients see what our processes are. Some naturally believe they can do the same thing in-house by hiring a full time employee to manage it all. At first glance, this might seem like a good idea. However, upon deeper investigation, the numbers for hiring full time are not necessarily in your favor. I'm going to show you how hiring a full time employee can actually be more expensive and doesn't give you the depth and range of skill that you get working with an agency.
Not Just Salary
The first thing to consider is the full weighted cost of hiring a full time employee. The salary is just the tip of the iceberg. There are many other costs associated with hiring employees which we are categorizing into three main buckets: Fringe Benefits, Overhead Costs, and General & Administrative. According to a recent Deltek report, the most common values for these rates were roughly as follows: Fringe 35%, Overhead 25%, G&A 18%. Almost every employee you hire has the following costs associated with them beyond their salary. This excellent post dives into detailed math but I’m going to recap the major points for you here. Fringe benefits (add an additional 35% of salary)
- Insurance (medical, dental, life)
- Annual bonus
- 401K or retirement contribution
- Payroll taxes (company paid portion)
- Training time (first 3-6 months and ongoing)
- PTO time
Overhead costs (add an additional 25% of salary)
- Computer hardware and software
- Conferences and tradeshows
- Credit card processing fees
- Repair services
- Snacks (food and water)
- Phone and data
General and administrative (add an additional 18% of salary)
- Bank services
- Legal fees
- Insurance (liability, workers comp, etc)
- Corporate taxes and fees
Breaking down the math
Applying these rates cumulatively yields a cost multiplier of 1.99; i.e., (1 + 0.35) x (1 + 0.25) x (1 + 0.18). This means that each employee is typically costing the company roughly twice (1.99 times) their base salary.
Based on the math above, if you have an employee that you're paying $45,000 a year, the real annual cost to employ them is roughly $89,550! Of course, these rates can vary depending on your specific business and expenses from year to year, but this report states these are the median numbers.
But wait, there's more...
Non-billable/Non productive time
How much time do your employees spend on actual work? How many of your employees spend time on Youtube, Facebook, Pinterest, chatting in the office, texting, personal emails, phone calls, etc? All of them to varying degrees. The actual utilization rate of an average employee is somewhere between 60% to 85% depending on their role. This means that if you're paying your employee $89,550 as in the example above, you're actually only getting 60% to 85% of that time being utilized on work for your business. This is a major factor to consider and one that is often overlooked.
Everyone knows that making a bad hiring decision can be extremely expensive. The average cost of a bad hiring decision can equal 30% of the individual’s first-year potential earnings. (that's a stat from the US Dept of Labor and Statistics). Additionally, firing an employee is harder than firing an agency. It is very common that under-performing employees are given extra time and multiple chances to improve their performance whereas if an agency is under-performing they are usually let go almost immediately.
How much time can you dedicate to managing the employee(s)? And if you were to dedicate that time, would you even know what an effective job looks like? If you're not getting results, would you know how to adjust the strategy to fix the problem? Are you advanced enough in your knowledge to make sure the "latest and greatest" in tactics are not going to bite you later or provide short term results followed by long term disaster?
More than meets the eye
For the type of marketing work we do, it would be extremely rare for one person to have the range of expertise required to accomplish what we accomplish. It takes a team of people with different skill sets and a deep knowledge in each one of them to launch a marketing campaign similar to ours. For example, for us to effectively launch and run an SEO/PPC campaign for a client we have the following team with the following skills:
This person follows the SEO industry closely and is aware of all the latest Google updates and knows what to do about them. They are trained on all of the technical aspects of optimization (redirects, URLs, site speed, duplicate content, etc) so they can perform website audits and explain them to developers. They are trained on Google Analytics and understand how to gain insights out of GA. They also have project management training to make sure projects are on time and managed smoothly.
AdWords is a super complex platform that is constantly updated with new features and enhancements. Our PPC Account Managers pass all of the Google AdWords certifications including the AdWords Fundamentals exam, Search Advertising, Display Advertising, Mobile Advertising, Video Advertising, and Shopping Advertising exams. In addition to staying on top of all the changes and taking full advantage of them, PPC Account Managers have the expertise to take the broader view on paid search advertising management. They have experience managing many different accounts. They set up and manage PPC accounts all day, every day. They know what works based on experience. Also, once you’re ready to take your paid search budget past AdWords they can help you get set up in Bing, Facebook and any other paid search platform out there.
The Content Manager creates content for link building. Every SEO client that we work with has a content strategy for link building. Link building is a huge (if not the hugest) part of improving rankings. Therefore, the Content Manager’s job is to come up with strategically created content that influencers and media would be interested in sharing on their sites. Our content managers have developed ideas for everything from infographics to interactives.
It is the responsibility of the Outreach Manager to get the word out- to build relationships with journalists, bloggers and editors to get the word out about our content pieces. Outreach is incredibly hard to get good at because it takes a keen sense of what will work in terms of pitching content to publishers. Publishers want to get pitched to a certain way and if you don’t understand the nuances your pitch will get ignored.
Of course if you’re creating all of these content pieces you have to have a great graphic designer. A lot of our pieces end up on sites like Forbes, USA Today, Inc.com, Business Insider, BuzzFeed, Entrepreneur, The Washington Post, Sports Illustrated, ABC News, etc. If you want these publications to post your infographics, they have to look professional and have a natural flow that makes them easier to digest. We also use a developer for interactive content pieces which come with their own set of complexities around putting them on the page and making sure they display properly on mobile devices.
Having a good researcher on staff is crucial- someone who knows where to find data beyond doing a simple search in Google. These are people who have degrees in library sciences and know the ins and outs of researching best practices.
The writer is the glue that holds everything together. Whether it’s a blog post, copy for a web page, or text for an infographic, the copy needs to be clear, concise and interesting to read all at the same time. You can’t underestimate the impact that good writing can make on every piece of marketing you put out there. Each person above specializes in his/her craft and spends every day working on it. Combining all of their skill sets into one or two people would dilute the knowledge and experience that is needed to execute an effective search engine marketing campaign.
It's not so simple
In the end, what matters most is getting results. The focus should be the output (results) as opposed to each variable independently. A good way to think about all of these variables is to combine them into a formula similar to this: Total Cost x Experience x Utilization x Management = Results
- Total Cost Ratio = The total weighted cost of hiring someone in-house vs hiring an agency.
The total cost used for in-house is based on a $45,000 weighted salary explained above which adds up to $89,550. The total cost for agency is $45,000 per year as well which is a $3,750 per month engagement. In this case, the ratio for the agency side is 1.99, or 199%, since you would be able to get 99% more work done at the same cost. Conversely, the ratio for the in-house side is 1, or 100%.
- Experience = The amount of experience the person or agency that is working on your marketing has.
This is going to be somewhat subjective but a good way to gauge would be to look at the number of years of experience in each discipline, past evidence of results, references, reviews, etc. Use a scale of 1-5 where 1 has no experience, and a 5 has four or more years of practical, documented experience. The experience level of an in-house is assuming that you are hiring someone with some experience but not someone with a lot of experience since that will be hard to get at $45,000 per year. You can adjust this part of the equation accordingly.
- Utilization = The amount of bandwidth that the person or agency will be able to dedicate.
Above, I mentioned that even a full time employee will not be able to give you 100% of their utilization. An agency will most likely only dedicate a certain number of hours each month to your project. Utilization is based on an in-house employee's time actually spent doing the marketing work. An in-house will likely have more total hours that can be spent on the work. However, he/she won't be able to spend all of their time on your specific marketing initiatives whereas most billable hours paid to the agency will be spent on actually getting that work done. Then you have to decide whether or not that person is ONLY working in that area of expertise. Some in-house people wear multiple hats and do different roles, so apply the percentage appropriately.
- Management = How much time will management need to dedicate to look over this initiative?
In-house will likely require more time than managing an agency relationship- that is to say, if you are good enough to get results. If you aren't, then results will go down over time.
Use a scale of 1-5 to gauge the amount of Total Management Effort (Management Time x Management Knowledge = Total Management Effort). The Total Management Effort given for in-house is at 2 since you will likely need to dedicate more time and will likely make more mistakes along the way figuring out what works and what doesn't work. An agency has already learned a lot from experience and can also educate you and your team on what works so the Total Management Effort is set to 4. Below is an example comparison between in house and agency using this formula.
In House: Total Cost Ratio (100%) x Experience (2) x Utilization (70%) x Management (2) = 2.8
Agency: Total Cost Ratio (199%) x Experience (5) x Utilization (100%) x Management (4) = 39.8 (higher number equals greater results with the agency)
When looking at all of the evidence given above, it's up to you to decide whether or not you should hire an in-house employee or an agency. I've given a lot of examples for why an agency makes a lot of sense. I'm looking forward to hearing your thoughts on why hiring in-house makes more sense as well!