How to finance your company’s marketing or advertising campaign

Setting the right marketing budget

Before you can establish how much money to allocate to marketing, Forgione recommends deciding how you want to reach customers. For example, do you want to develop a new website or pay for ads on social media? Or do you want to focus on traditional advertising media, such as newspapers, radio or television?

Knowing the answer to questions like these will help you chart the best path forward. Understanding your industry and who your customers are is key. Once you’ve figured that out, you’ll need to decide how much you’re willing to invest in a marketing or advertising campaign.

“When you're a small business, you start small,” says Forgione. “Investing large sums in marketing doesn't necessarily mean you're going to get a return on your investment.”

A BDC survey found that Canadian small businesses spend just over $30,000 a year on marketing, on average. Businesses with 50 employees or more tend to have marketingbbudgets in excess of $100,000. How much your marketing campaign may cost will depend on your goals—and your access to financing.

Exploring your financing options

For many small businesses, finding the money to support marketing activities isn’t easy because marketing isn’t usually part of a company’s everyday operating costs or budget. That’s why owners often need to look to outside sources. There are two main options:

• A working capital loan
  This short-term financing can enable companies to bridge gaps by financing business operations, such as sales and marketing or product development.
• A line of credit:
  Also known as a bank operating loan, this is a short-term, flexible loan that a business can use to borrow a preset amount of money to bridge funding gaps for ongoing expenses.

According to Forgione, a working capital loan is the better choice for most marketing campaigns because the campaigns are often one-time expenses. Lines of credit are better suited for covering ongoing expenses.

“If you have decided that doing paid ads on Instagram and Facebook every month is the best way to meet your target market versus an annual blasting of social media ads, then a line of credit would work just as well.”

Applying for the financing you need

Forgione says getting financing for advertising or marketing is relatively easy—if you have all your ducks in a row.

Once you have decided what kind of loan best matches your needs, you need to craft a solid loan application using the right documents. The most important thing any bank will want to see is annual financial statements to make sure your company is in solid financial shape. For larger loans, you will need two years’ worth of statements along with interim statements comparing the latest period with the same period in the previous year.

If your business is looking for a loan of more than $100,000, you will also need to provide financial projections that include a monthly cash flow forecast for the remainder of the current year and the following 12 months. In some cases, a lender might request two years of projections to show how the money will be used and confirm that it will bring in the income you're looking for.

Making sure the investment is worth it

Developing a successful marketing campaign isn’t an exact science. But Forgione suggests companies can use the return on investment (ROI) formula to ensure the campaign will be worth the effort—and the risk. ROI is the net profit from your marketing divided by the cost. For example, if the business earned an additional $200,000 in a given year, but spent $100,000 on marketing, then the ROI would be 200%.

Forgione admits that investing in a market campaign can be a bit of a gamble and doesn’t always lead to increased sales or direct revenue. That’s why she suggests that businesses “dip their toes” into the water to test it out. If it does work, then you may want to consider investing more to run a bigger marketing or advertising campaign in the future.

“I think the idea is not only to dip your toes in, but to do your research and surround yourself with experts,” says Forgione.

When it comes to marketing, she says companies should also be creative. “Test things, try things. You want to have a plan and a budget, but if that doesn't work, try something else. Adapt to your market and your clients.”

Avoiding marketing pitfalls

Forgione warns that one common mistake small businesses make is using an existing line of credit to finance one-time marketing expenses instead of applying for a loan. The line of credit can be used up too quickly, leaving businesses unable to cover other necessary costs.

“They come to see us too late,” she explains. “I know sometimes it's hard, but you need to walk before you can run. You need to have a plan in place before you start.”

She says it is also important to monitor your marketing budget quarterly and annually to see if your projections align with your actual spending. By keeping a close eye on your marketing costs and adjusting along the way, you’ll be able to generate more accurate marketing budgets as time goes on.

Find out how to come up with a marketing budget

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