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Marketing budgets are growing. A CMO Survey anticipates almost 7 percent growth over the next year. Companies with annual revenue under $25 million spend an average 13.9 percent of revenue on marketing. An increasing amount of this goes towards digital marketing budgets, which Gartner expects to grow 10 percent this year.
But coming up with this part of your budget might seem challenging if you're just starting up. You need sales to fund your promotional efforts, but finding your first customers depends on your first major marketing push, making its success crucial. Adopting some smart financial strategies can help you navigate this vital period in your business growth.
Set Your Marketing Budget
If your annual revenue falls under $5 million, you should allocate 7 to 8 percent of this to marketing, assuming profit margins of 10 to 12 percent, the Small Business Administration advocates as a best practice. To customize these guidelines, adjust your budget to your revenue goals. Estimate how many leads you need to hit your targets, given your sales conversion rate per lead and your average revenue per sale, then estimate your cost per lead to set your budget.
Focus on Cost-efficient Activities
You'll find funding easier if you streamline costs by focusing on efficient promotional tactics. An October 2013 Constant Contact survey reported that referrals are the top lead generator for 82 percent of small businesses. The Direct Marketing Association has found that telemarketing pulls prospects six times better than direct mail, with both outperforming email.
Email, however, represents the best return on investment, and according to Experian's 2013 Email Market Study, forms the hub for cross-channel marketing campaigns connecting online, social, and mobile promotion to in-store sales. Online, Curata has found that the most successful marketers mix 65 percent created content with 25 percent curated and 10 percent syndicated material. Optimize your marketing mix to economize your budget.
Develop Your Financing Strategy
With your marketing mix and budget set, it's time to seek funding. Start-ups will find more luck attracting angel investors than traditional venture capital firms. The Angel Resource Institute's annual Halo Report provides a rundown of today's top investors. If you're looking for crowdfunding, Inc. provides a guide to finding the right resource for your venture.
Investors need to know how you plan to spend and recover their money by preparing basic financials, including balance sheet, profit and loss projections, sales forecasts, inventory schedule and cash-flow outlook. Your venture will be more attractive if investors see you've invested some of your own money. If you're entitled to regular payments from a structured settlement, consider selling your future payments for a lump sum of cash now. You might invest this money to help kick-start your marketing campaign.
Use Sales to Fund Success
Another financing option increasingly attracting start-ups that are struggling to attract loans or angel investors is revenue-based financing, the Washington Post reports. With this financing model, the start-up repays investors out of its monthly revenue. Successful deployment of this model depends on sufficient revenue and profit margins to cover payments to investors.