How much should agency owners pay themselves?
Here’s what I know about you: You have a marketing agency with a team that seemingly grew closer through all the challenges the pandemic presented. You had to make some tough decisions over the past two years and even had to let a few people go to keep your business afloat. You are now starting to get your swagger back and are feeling less nervous about your ability to make payroll. One of the toughest decisions you made during the pandemic was reducing your salary. Some of you had to reduce your salary to the point where you didn’t pay yourself. But now that we’re on the road to recovery, we need you to start paying yourself a fair market salary.
So how do we determine salary for a role that requires you to wear so many hats from being the chief inspiration officer, to running payroll, bringing new clients through the door, and everything in between. There is no hard and fast rule for how you pay yourself. But I’ll give you some guidelines to make sure you are compensating yourself for the risk you take every day as an agency owner.
In the words of Meek Mill… there are level to this.
LEVEL 1: PAY YOURSELF ENOUGH TO SURVIVE
Level 1 primarily occurs during the launch phase of your agency and during unforeseen circumstances like a pandemic. At this level, you are simply trying to pay yourself enough to cover personal expenses. Make a personal budget factoring in all your personal expenses like mortgage / rent, car payments, loan payments, credit cards, and food. Aim to pay yourself enough to cover these expenses so you can still grow the business but also survive personally. As an example, if your expenses were $2,000 a month then you could pay yourself this amount to survive. Anything less and you are unable to make your personal obligations.
LEVEL 2: PAY YOURSELF TO SURVIVE AND THRIVE
Progression from Level 1 to Level 2 is marked by your ability to build wealth outside of your business. A good rule of thumb is for 20% of your salary to go to savings and retirement. If your personal expenses are $1,000 a month then you should aim to pay yourself $2,400 a month. This amount affords you the ability to put money away for a rainy day.
LEVEL 3: PAY YOURSELF A MARKET WAGE
If you needed to step away from your business, how much would it cost to replace you? The number that just popped in your head is a probably a good estimate of your market salary and that’s what you should be paying yourself. Outside of guessing how much you should pay yourself; you could look to the trade publications for salary data. These publications tend to publish salary data at least once a year. Additionally, here is a good rule of thumb directly from my agency scorecard review which is part of my Agency Ops advisory service.
- Owner of a 5-person agency should aim to pay themselves no less than $100K
- Owner of a 10-person agency should aim to pay themselves no less than between $175K
- Owner of a 15-person agency should expect to pay themselves no less than $250K
CLOSING THOUGHTS
When you pay yourself every month or however often you choose to pay yourself, you might have questions about whether you should take an owner’s draw or be on payroll. Feel free to reach out to me if you want to talk through the pros and cons of each. In a future article, I’ll explore how much you should be paying your people.
If you found this article helpful, I bet you’d love the weekly deep-dives I share exclusively in my Substack newsletter. Think of it like having a chat with a friend — only that friend has 20+ years of experience helping agencies just like yours.
Want more straight-talk advice on strategy, attracting new clients, and scaling your business? Hit that subscribe button and let’s keep the conversation going. Your future self will thank you, trust me.
