Pure word-of-mouth small-business growth is the ultimate prize. It can leave entrepreneurs with more capital to invest in their operations, rather than funneling funds to costly growth marketing. But the reality is, such organic growth is rare. For the majority of entrepreneurs, building a successful business requires a steadfast marketing plan and money. In fact, some businesses spend up to 12% of sales on marketing.
With this in mind, The Motley Fool analysts Michael Douglass and Nathan Hamilton talk, in the video below, about how small-business owners can improve their bottom lines and take advantage of crucial business credit card perks for marketing expenses.
Michael Douglass: A lot of the Internet talks about the stuff you shouldn't put on your credit cards. It's just stuff you can't pay off, all these other things, and of course, everything that comes with a 3 or more percent service charge because frankly you're not getting that much back in rewards. Often lower than 3%, you're also not getting enough back, but at least at 3. Yet, there are some things that it makes a lot of sense to put on a credit card, particularly if you're a small business. Advertising, this was surprising to me.
Nathan Hamilton: If you look at what makes a company grow, it's getting your name out in the market-
Hamilton: And creating a brand, and really, the only way to do that is through advertising, and that requires money. Legitimately, if you want to grow your business, I think most entrepreneurs know this, it's going to take a heavy advertising spend. Sure, if you have word of mouth, there's that utopia that you have with your business model, then you're in rare territory.
Hamilton: Where you don't have to put as much money into marketing, but if you look on averages, small businesses place anywhere from 2%-12% of their annual revenue as marketing spend.
Douglass: Wow. To be honest, I'm surprised it's not higher.
Hamilton: Of course, in some businesses, it's going to be far higher-
Hamilton: But it's astounding if you look at it. With credit cards, where you can take advantage of this is most small business credit card offers that are coming out nowadays actually incentivize that sort of spending with rewards, and it's really smart to take advantage of it because you can get 2%, 3% plus, sometimes even higher, rewards back when spending on advertising, search engine marketing, Facebook platforms, and so forth for your digital ads, and it really makes sense because not only are you helping grow your business, but you can take those rewards, funnel it back into either additional marketing spend or improve your bottom line somehow else.
Douglass: Makes a lot of sense. Let's also talk about signup bonuses.
Douglass: Looks like there's often there's some of that tied in with advertising spend, as well, so that's definitely a plus.
Hamilton: On the signup bonus side, you'll be looking at several hundred dollars for some cards on the market, and that's without an annual fee. If you are willing to pay a fee, you're going to have a higher bonus potential. When you get into that category, you're also going to have a higher spending threshold to qualify for it, but sir, if you back in the numbers, just going back a little bit, say you've got a million dollar business. That's a revenue you're running at.
Hamilton: On advertising, we said 2-12%. Let's say 10% is what you spend.
Hamilton: That's 100K a year on advertising if you pack in the rewards from there. That's $3,000 plus if you're earning a 3% rewards rate. That's pretty significant when you talk about it. Sure, it's not going to take your business from a million to 20 million, but it could grow your business pretty significantly over the long term, and as I mentioned, helps improve your bottom line.
Douglass: Help you get a small raise.
Douglass: Especially in those first couple lean years.
Hamilton: Take a salary.
Douglass: That's the point of owning a small business.
Douglass: We've got a lot more information about this and other hacks using credit cards and really thinking about the best way to use business credit cards with your small business at Fool.com/businesscreditcards, so check us out there. We got a lot more information. Thanks, Hamilton.