Business success often hinges on two things: money and marketing. Yet, too many companies stagnate or fail because they don’t have the capital to invest in crucial marketing initiatives such as new technologies or services.
This is where trade credit — or financing from vendors themselves — becomes invaluable. As a marketing company, you have the unique ability to offer credit options to clients who have been turned down for traditional loans.
Companies cut their marketing budgets for many financial reasons and often question why they need to invest in marketing in the first place. Here are a few objections and how a financing option will help combat them:
“We don’t have the money.” Cash-strapped businesses that don’t leverage debt can’t grow as quickly as those that do. As a result, they hit a growth ceiling. Because they’re not bringing in much revenue, the customer lifetime value won’t be as high as it would be if they had access to financing.
Offering a financing option benefits your business and your clients. It can lead to a long-term client relationship and great word-of-mouth marketing.
“Marketing money is a luxury.” The decision to invest in marketing often relies on the assumption of future growth, which is hard for business owners to think about when they’re in a bind. In fact, marketing is often the first thing to get cut during lean times.
Business owners will spend more on marketing services if they have more time to pay it back. When you offer financing options, you see direct results from more clients buying your services.
“We don’t have a marketing budget.” Many business owners either don’t have a marketing budget or see the one they do have as expendable.
Business owners who do have a dedicated marketing budget often fail to plan for increases, leaving them stuck in the same spending and earning patterns.
Financing helps business owners break this cycle by establishing a long-term marketing budget that’s separate from their day-to-day operational costs. You can change the conversation from “Should I spend on marketing?” to “Will I generate more revenue than the cost of the marketing plus the cost of capital of the financing?” If the answer is “yes,” the client will justify the spend, and you’ll make the sale.
“Marketing won’t generate ROI fast enough.” If business owners are spending on marketing, they expect to see ROI immediately. They want assurance that the revenue each new client brings in is greater than the cost of acquisition.
Slow ROI may intimidate clients, prompting them to cancel services or move to competitors before they’ve had a chance to see your strategy through. Financing provides a solution to both of these problems, giving clients the financial breathing room to commit to marketing budgets and contracts that could transform their companies.
Successful marketing agencies base their actions on learning and optimization, which take time — especially considering the steep learning curve in the beginning. Offering financing can encourage clients to stay on longer. Once they see that your strategy actually works, they’ll continue coming back to you.
Financing In Practice
There are a few ways to help your clients secure the money they need for your services. The one you choose should depend on your company’s resources and the risks you’re willing to take.
1. Leverage Your Own Debt
If you have access to extra cash flow, leverage extra debt to provide vendor financing to clients. In a way, you’ll almost act as an intermediary financing option.
In some cases, you can offer clients better approval ratings and more favorable terms on financing while ensuring that the capital is being put toward your services. However, it can be difficult to assess clients’ creditworthiness, and you’re responsible for the cash flow and collections risks.
2. Refer Clients To Financing Options
Referring your clients to companies that offer working capital loans will give them the resources they need. Plus, it will take the collections risk off of you.
However, keep in mind that the money is usually no longer tied to your organization, so your client could use the funds to go with a competitor or to expand his general budget rather than financing marketing initiatives.
3. Outsource Alternative Financing Options
New purchase financing options that allow your clients to pay over time, such as split payment agreements and business credit lines, enable business owners to invest in their companies and ensure they profit from the relationship. These credit lines tend to be smaller than with traditional loans.
Behalf, for instance, pays vendors on behalf of its clients and allows clients to choose a repayment structure that works for them. This option eliminates vendor risk and ties the money to the specific service transaction. Because these purchase financing options include two parties — the marketing company and its small business customers — they need to take both sets of needs into account.
Your company depends on business owners who are willing to invest in marketing. By that same token, business owners need marketing in order to survive. Trade credit helps get owners past the financial pain points that keep them from the kind of budgeting that allows for effective marketing campaigns.
Benjy Feinberg is co-founder and CEO of Behalf. Committed to the power of building relationships between small businesses and vendors, Behalf provides small business purchase financing and works with vendors to increase sales by offering financing options to small businesses.
