Should you hire an advertising agency? If your startup will be spending less than $25,000 per year on advertising, probably not. You'll either be too small for an agency to take on, or too unimportant to them even if they do take you on as a client.
At this spending level, you should use freelance talent to produce your advertising materials and campaigns. It's not hard to find competent freelancers who will work with you on an hourly basis; expect to pay $50 to $100 an hour for experienced people.
To get the most from your freelancer, do your thinking first so you're clear about what you want (your market focus, your target customer, the benefits you want to emphasize, and so on). Then ask friends and colleagues in business for referrals to freelancers.
Interview the candidates to see how they fit with your needs. Ask for (and call) references, review work samples, ask them about price, and look at some projects that are representative of their pricing.
You'll probably need to hire a copywriter and a designer. Make sure they get along and can work well together. Introduce them to each other, and have a three-way discussion of your project and possible approaches.
Another low-cost alternative--which entails a little extra risk--is to contact a local technical college or art school and have some students work on your project as a way to gain experience. You can also contact small newspapers in your area and ask if any staff members do advertising copy or design on the side. If you go this route, be prepared to provide lots of focused input, and be patient. In return, you'll save a fortune.
Adapted from Entrepreneur magazine's Start-Up Guide #1809, Successful Sales & Marketing: Smart Ways to Boost Your Bottom Line.