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Many new businesses don’t have enough cash to invest in marketing their services or products – we know because we’re entrepreneurs ourselves, and we’ve helped our SMB clients solve this problem. As a result, cash-strapped businesses often rely on word-of-mouth referrals from friends and family members. Word-of-mouth can be a highly effective tactic, but it takes time and effort to build relationships with potential customers – time many growing companies just don’t have.
Many small business owners and finance leads see marketing as a cost, rather than an investment. (In fact, on average, small businesses only spend 1.08% of their budgets on marketing, although this varies by industry.) This is in part because in the past, it’s been difficult to measure success and know if your campaigns are having any effect, especially depending on the type of marketing and the reporting available. For example, it’s hard to know the effect of a billboard, but you can see how many customers you get from a pay-per-click (PPC) campaign with Google or another search engine. The same is true for many email marketing platforms. This data helps prove that marketing is an investment toward growth.
You may be wondering how much you should budget. And the truth is, it depends.
Some experts can correlate general marketing funding amounts to growth. CEO Thomas Minieri of Minieri & Company recently said that 5% to 10% of sales revenue should go to marketing efforts for stable cash flow. Businesses that want to accelerate growth may want to contribute 20% of revenue towards marketing, depending on the priorities and industry.
The next question is: Where do you get this business funding from? One way to boost your marketing efforts is to use capital for marketing.
What is Marketing Funding?
Marketing funding is working capital specifically earmarked for your marketing endeavors. Ideally, the investment will return more than enough revenue to recover any funding costs.
Capital for marketing can be used on a number of different initiatives such as:
- Social media marketing
- Content marketing
- Advertising and PPC campaigns
- Email newsletters
- Direct mail
- Conferences, seminars, and other in-person events
Where Can I Get Funding for Marketing?
Having funding for your marketing efforts is essential so that you can grow your business and your revenue. Your sales will often increase when your target audience is well-informed about your products and services. One of the most challenging aspects of marketing is figuring out where you will get funding for your marketing efforts.
Fortunately, there are several viable options available when it comes to funding your marketing strategy. We’ve come up with the pros and cons of each so you can decide which is best for you in your situation. And, of course, you don’t have to limit yourself to one; a combination of funding options gives you the most flexibility.
Invoice funding
Invoice funding, also called invoice factoring, is a type of business funding in which an invoice factoring company pays a company’s unpaid invoice quickly, way ahead of net terms. The invoice factoring company then follows up with the business’ customer and gets paid according to the invoice’s payment terms.
Before we dig in further, let’s address some common misconceptions. Some business owners are hesitant to use invoice factoring, believing that struggling companies use it. They worry that their customers will think they aren’t financially stable. But nothing could be further from the truth. Many companies that use invoice factoring are thriving. This is because they can strategically use capital from invoice factoring for big projects or to grow their business through marketing initiatives.
Invoice factoring for small businesses gives you marketing funds to fuel campaigns, build your brand, and get the word out about your business. Here are some examples of the advantages of invoice factoring for your marketing initiatives:
- Fast capital for immediate opportunities. Maybe your pipeline is thin and you need to increase your leads quickly by setting up a Google Ads campaign. The quicker you can get funding, the faster you can start. The approval and funding process with invoice factoring can take days rather than weeks.
- Flexible source of funding. Your marketing needs are likely to fluctuate. Invoice factoring offers the opportunity to fund invoices only when you need it. No long-term commitments after your customer pays.
- No debt, better cash flow. Traditional loans add debt to your balance sheet, which can shrink your marketing budget (and other key budgets) over time. Invoice factoring isn’t debt because your customer pays their invoice as planned to repay the advance.
- Spend more time on growth and less time on follow-ups. Invoice factoring companies take over the collections and payments follow-up process. (See our approach to working with your customers if this concerns you.) That way, you have more time in your day to focus on activities that will grow your business.
Cons
- Customer perception and concerns about damage to the relationship. We can’t speak for all invoice factoring companies, but at FundThrough, we treat your customers like our own.
- Difficult to record in bookkeeping. See our step-by-step guide to help you with this. While the article mentions QuickBooks-specific steps, the general principles apply to any accounting software.
Here’s an example of how invoice factoring works: let’s say you fund a typical invoice for your business for $50,000 which is due in 60 days. You can either do no marketing for 60 days and collect the full $50K, or you can pay a 5 percent fee (2.5 percent/30 days x 2) to get paid in days. You can then spend part of that $47,500 on marketing in those same 60 days. You’d only need to generate a return in deals won greater than the $2,500 invoice funding fee to make the funding worth it. Not to mention all the intangible benefits of brand awareness raised during a targeted marketing campaign that ultimately contributes to winning future deals.
Grants
Another source of funding for marketing is grants. There are grant programs available based on location and industry from both the local and federal government. While grant funds can be a great source of “free” money, they often have a lengthy and time-consuming grant application process, and you’re competing with many other businesses for funding. Grants are somtimes reserved for specific use cases.
For example, in the U.S., the Small Business Administration (SBA) has a handful of grants, mainly geared toward research and development, which would not be appropriate for marketing. But its State Trade Expansion Program (STEP) can be used for marketing initiatives.
There may also be additional grants from your state, city, or even key industry organizations.
Canada has its own grant programs, too. For example, there is a government initiative under the REGI program to help fund growth for food processing, manufacturing, technology, life sciences, and other companies. These funds can be used for marketing. The Sustainable Canadian Agricultural Partnership (SCAP) offers a grant specifically for Agrimarketing to increase visibility for Canadian products.
It’s also important to remember that you don’t necessarily need to apply for a marketing grant. Receiving a grant in any area of your business can free up capital for marketing activities.
Pros:
- You don’t have to repay the grants.
- Obtaining a grant offers some level of prestige.
- You may be able to tap into additional resources based on the grant provider.
Cons:
- The application process is time-consuming.
- It may take months to get funding.
- Some grants require repayment.
- You may not meet your goals with the grant money and require more funding.
Self-fund
You can always choose to self-fund your marketing efforts by investing your own capital into the business, but this comes with greater financial risk in the event your business runs into trouble.
Pros:
- No wait for capital.
- Ability to immediately act with your funds.
- No interest or repayment.
Cons:
- Risk of no or low ROI.
- Limited funding availability.
Loans for marketing
One popular funding method for many small businesses is a business loan for marketing. It’s convenient in that you get a lump sum of capital to execute a marketing program with fixed repayment terms. On the downside, the eligibility requirements can make it hard to qualify for new businesses, and they take some time to get in place due to the lengthy application process. You’re also going into debt to fund your business growth, which isn’t an ideal situation.
Pros:
- Lower interest rates.
- Longer repayment terms.
- High borrowing amounts.
Cons:
- Strict eligibility requirements that are difficult for new businesses to meet.
- Lengthy application process.
- Collateral requirements.
Partner up
If you don’t mind working with an outside partner to secure capital for marketing, you might consider taking on venture capital or crowdfunding.
Venture Capital
Venture capital can offer you the working capital and mentorship you need to accelerate business growth. Given how difficult it is to obtain, it’s one of the most prestigious types of funding. Only 0.91% of startups receive funding from angel investors and 0.05% from venture capital firms.
To apply for venture capital funding, you must identify ideal investors, pitch your business plan, wait for the investors to complete due diligence on your company, and negotiate terms. If all goes well, you will get funded. But you’ll also have to give up some equity in your company.
Pros:
- Tap into investor expertise, including for your industry, business operations, and growth
- Move and grow quickly
- Large amounts of funding
Cons
- Difficult to get
- Slow process
- Requires time-consuming research and paperwork
- You will have to give up some level of control over your company
Crowdfunding
Crowdfunding is when you ask individuals to contribute a certain amount to your funding goal. You may or may not give incentives to contributors or simply promise some level of repayment once your project is a success. Typically, these investors are everyday people, and so you will need to have hundreds, if not thousands, of investors, each contributing a small amount. With crowdfunding, you aren’t required to give up equity, but you don’t benefit from a partner invested in your success.
You can set the timeline of your funding round, investment terms, goals, and other key information. The success rate for crowdfunding projects is 22.4%, which is higher than with venture capital, but significantly lower than other funding options.
Pros:
- Quick turnaround time.
- Doubles as brand awareness.
- No need to give up equity.
- Build a customer base.
Cons:
- Very few are successful and get complete funding.
- High fees from the crowdfunding platform.
- Lack of control over who invests.
- Limited timeline.
- Fundraising amount limits.
How to Use Capital for Marketing
The most important thing to keep in mind when deciding how to use capital for marketing is to have a marketing plan. We won’t go into too much detail for drafting a marketing plan here since the topic is enormous and requires its own article. But we will cover some basics related to funding.
Having a business development plan for using your marketing capital will help you understand what sort of return you can expect from your investment without overspending. Some questions to ask yourself when developing your marketing strategy include:
- What are your short-term and long-term goals? (Do you want to raise brand awareness, generate leads, and nurture clients toward repeat purchases?)
- Who is your ideal client?
- Where are your ideal clients spending time?
- What does success look like?
- How will you measure that success?
- Topics of interest to your target audience. (Start with FAQs you or your sales team gets.)
- How much of your funds can you afford to allocate to marketing?
- How will you execute your strategy?
Once you have your strategy and your marketing budget, you need to choose tactics to execute your strategy. Marketing dollars may go towards:
- Branding. This involves creating a brand identity as well as marketing materials. Branding assists with brand awareness and creating a consistent image of your company.
- Website. This involves website design, hosting, and keeping content up-to-date. Many consumers and businesses use your website to get a first impression of your company.
- Content marketing. Creating content (like this article!) can help you to attract leads through search engine optimization. This is often directly linked to search engine optimization (SEO) initiatives, which is focused on making it easier for customers to find your online content.
- Social media. Creating and managing social channels builds a following for your company who you can nurture toward becoming customers. This approach can also dovetail with content marketing and video marketing. Furthermore, most social media platforms have advertising options, too.
- Online advertising. Search engine ads are a popular way to reach customers, but you may need to hire a professional to write, design, and run them.
- Public relations (PR). Think writing press releases, meeting with influencers, and working with newspapers and other media.
- Traditional advertising. Don’t forget about the value of print ads, radio, and television ads! Direct mail, in particular, is not as common as it used to be. So this approach can really make your business stand out.
- E-newsletters. Building and maintaining a list and creating content on a regular cadence requires investment. But it’s pretty effective. And it can be a way to retain current customers as well.
- Videos. Video content is an excellent way to showcase your business, but videographers or just DIY equipment costs money. If you’re posting on YouTube and your channel becomes popular, it could even be an additional revenue stream.
- Staff training. If your marketing team handles efforts in-house, don’t forget to invest in staff training to keep skills fresh and stay on top of best practices.
- Event marketing. Attending seminars, organizing a webinar, and attending conferences or local events all require cash. With careful planning, meeting clients in-person events can be particularly effective.
- Referral programs. Word-of-mouth is still an ideal way to acquire and retain customers, but this can need some funding, too. Referral programs often require prizes and other incentives to encourage participation. And you’ll need the resources to manage it.
Once you have access to capital for marketing, know who your target is and where they’re spending their time, you can start investing in those channels. Keep track of spending and results, and adjust regularly for the best results.
Using Capital from FundThrough for Marketing
There are several options for marketing funding, but one sticks out: Invoice factoring. With invoice factoring, you can leverage fast and flexible funds to maximize your marketing efforts. And we advance you 100% of your approved invoices. As a result, you can get funded fast to grow fast.
FAQs
You can get marketing funds from a variety of sources, such as invoice factoring companies, traditional bank loans, grants, lines of credit, personal funds, P2P lending, crowdsourcing, venture capital, and other forms of alternative financing.
Marketing campaigns can be short-term projects or long-term initiatives. How much funding you need and the type of lender you should work with will depend on your goals and marketing strategy.
Marketing funds aim to accelerate growth through brand awareness and lead acquisition. A marketing campaign can boost sales and grow your customer base, allowing you to scale revenue rapidly. But you will need funding for your preferred marketing activities to succeed.