Online Advertising Delivers BIG Benefits for Small Businesses

By SBE Council at 10 September, 2019, 7:13 am

The Digital Boost to Startups and Small Business: Online Advertising Delivers BIG Benefits

SBE Council-TechnoMetrica survey of small business owners with analysis and estimates by:

Karen Kerrigan, President & CEO

and

Raymond Keating, Chief Economist  

 

INTRODUCTION

Online advertising is saving entrepreneurs and small business owners significant time and money, creating more efficiencies and effective uses for the limited capital they have on hand, and playing a positive role in driving new sales growth and revenues. These are the findings of a new survey conducted by TechnoMetrica for SBE Council along with our accompanying analysis and estimates in “The Digital Boost to Startups and Small Business: Online Advertising Delivers BIG Benefits.”

Moreover, for startups and new businesses, the availability of online advertising was identified by entrepreneurs as a key factor in launching their enterprises, with 80% agreeing that: “The ability to reach customers and potential customers was an important factor in starting my business.”

With entrepreneurship lagging in recent years, tools and strategies that lower risks and strengthen affordable access to markets and customers are vital to enabling startup activity. Of the startups surveyed in our report, 90% agree that “Online advertising has provided my business with an affordable option to launch and/or grow my business,” and 86% agree that the method is “important to my business survival and growth.”

Technology, obviously, has become an entrepreneur’s best friend. New innovations continue to produce cutting-edge tools for entrepreneurs to launch and grow their businesses. Thanks to the internet and cost-effective methods that help entrepreneurs target and reach potential customers, small business owners are experiencing very positive returns through online advertising, according to the results of our survey. They are also shifting savings from this affordable option to other important needs within their businesses, which in turn supports their competitiveness and growth.

As SBE Council has found in our various reports and work over the years, each new wave of technological innovation and the tools spawned by big innovations has created big benefits for small businesses. For example, as we found in our work that tracked the emergence and then explosion of mobile devices and apps in 2014, the adoption of these new technologies by small business owners added up to big savings – with mobile apps saving businesses almost 600 million hours annually and mobile devices nearly 2 billion in hours. In total, SBE Council estimated that the use of these technologies saved America’s small business owners a staggering $67.5 billion a year.

According to estimates in our new report, the savings for small businesses run even higher when it comes to online advertising, nearly $163 billion annually. This should not be a surprise given the efficacy and lower costs associated with online advertising, and the savings of time and labor that allow small businesses to use their resources more productively. We outline these significant benefits in this report, and how online advertising is supporting entrepreneurs in building competitive businesses and helping the U.S. economy grow.

SUMMARY AND KEY FINDINGS

It’s tough work starting and growing a business. The challenges can be overwhelming and every entrepreneur needs new customers. Without access to digital marketing, significant time and money is spent by the entrepreneur and her team identifying potential customers and lists, deciding the best way to make contact through the use of various advertising methods, testing such methods and tracking results, waiting longer for results, and often-times simply hoping for the best once a campaign launches. Online advertising has streamlined or reduced many of these time-consuming and costly steps, which has created staggering savings and efficiencies for small businesses. Those are the findings of TechnoMetrica’s survey results and SBE Council’s analysis and estimates in the new report, “The Digital Boost to Startups and Small Businesses: Online Advertising Delivers BIG Benefits.”

Big Savings in Time and Labor: By using online advertising, entrepreneurs report that employee hours saved each week average 10.93 hours. On top of that, business owners report that online advertising gives them more of their own time back, saving on average 9.28 hours each week, which is then reallocated to more productive uses in their business. Time is the entrepreneur’s most precious resource, and more time spent innovating, managing, and growing the business, means a greater chance for growth and success.

According to our estimates, employee and owner hours saved as reported by small business owners in the survey combines to an estimated $3.1 billion each week, and $162.8 billion annually for America’s small businesses. Yes, those are big savings. And these are critical resources that can be re-invested back into growth-producing opportunities for their firms.

Re-Channeling Savings Back Into the Business: Not surprisingly, small business owners are investing these savings of time back into the business: 42% have searched for or are investing in new growth opportunities, 31% have invested in new equipment to improve competitiveness, 29% have increased wages or benefits for employees, and 22% increased the size of their staff.

In addition, the survey finds that small businesses are directly saving on advertising dollars by using online methods. Seventy-four percent of small business owners in the survey reported direct advertising cost savings, with 28% of small businesses saving $1,000 to $5,000 each year and 16% saving under $1,000 on a yearly basis.

Affordability of Online Advertising Critical to Growth and Survival: Small business owners report that they have also boosted the competitiveness of their businesses from new revenues generated by online advertising, which they say is extremely effective at driving new sales. In fact, 73% of small businesses stated that without online advertising “it would impact my ability to effectively market my products and services and to grow my business.”

The smaller the business, the more important online advertising is to growth and survival, according to the survey, and 76% of the smallest businesses (those with less than $100,000 in revenue) agreed that, “If it were not for online advertising, I would not have a cost-effective method of advertising my products and services, and reaching new customers.” (70% of all respondents to the survey felt the same way.)

Online Advertising is Effective: While most of the small businesses in the survey use a mix of online and traditional advertising like newspaper ads, mailings, radio, television and other methods (29% use online advertising exclusively and 71% use a mix), survey respondents pointed to key benefits of online advertising compared to traditional advertising such as: finding new customers leading to new sales (89%), the ability to target their intended customer base more effectively (88%), identifying new customers and prospects (87%), saving time on labor with regard to research, targeting, and other aspects of selecting appropriate methods for advertising my products/services (84%), they can more effectively compete with other businesses including larger businesses (82%), and increased value and higher return on investment on ad dollars spent (81%).

In addition, 89% of small business owners expressed confidence (44% very confident) that their advertising dollars would yield results for their business using online advertising versus only 7% who were not that confident.

Reducing Risks and Enabling Startup Activity: While entrepreneurship has rebounded since the Great Recession and its aftermath, startup activity remains weak by historical standards. Many reasons have been cited for the lack of business creation including: the aversion to risk given the extended pain of the Great Recession, lackluster economic growth (until recently), the challenge of accessing capital, regulatory barriers, the burden of student debt for millennials, and individuals not having the appropriate knowledge or not knowing where to turn for help in launching a business.

For startups in our survey, and as noted in the report’s introduction, being able to effectively reach potential customers through online advertising played a factor in these entrepreneurs starting their businesses – 80% of survey respondents cited this as an important factor.  Business is all about driving revenues and sales. If budding entrepreneurs are confident that they can connect with their target market, especially in a cost-efficient manner, they will be more willing to take the risk of launching a business. In fact, 90% of startups said online advertising provided their business with an affordable option to launch and/or grow my business, and 86% felt online advertising is important to business survival and growth.

Policy Considerations: To encourage and sustain an innovative culture and investment that drives innovation, entrepreneurship and small business success, elected officials and regulators need to ensure their actions encourage all of these positive activities. Common-sense rules and regulation are critical to this end. Whether it is tax, trade or regulatory policy, stability and light frameworks are always the best approaches toward encouraging strong economic growth and the innovations that emerge from investment, collaboration and economic freedom. Indeed, rules and laws often must often be modernized and updated to keep up with the pace and scale of innovation. In the end, lawmakers and regulators must carefully review – and tread lightly – on potential regulations that govern the new digital ecosystem given the significant benefits to entrepreneurs, the customers they serve, and the U.S. economy.

A DEEPER LOOK AT SURVEY RESULTS AND ESTIMATES ON SAVINGS FOR SMALL BUSINESSES

Again, the internet and broadband have been critically important to entrepreneurship and helping small businesses more effectively scale and compete in the marketplace. It is vital, therefore, that policies and initiatives continue to promote investment in broadband infrastructure and next generation technologies, like 5G. Communities without access to broadband means limited opportunities for people located there, and the communities themselves will be less vibrant and appealing to investment and economic development.

Entrepreneurs and small businesses have benefited greatly from tools made possible by the broadband internet. E-commerce, mobile apps, the cloud, operational software, social media, mobile payments and the list goes on. Today’s small business owners are quickly adapting to rapidly evolving technologies that save them money, allow them to do things faster and better, and to more effectively compete in the demanding economy. This includes reaching and competing for new customers.

Online advertising and social media have quickly become vital components of the entrepreneur’s strategy for identifying and maintaining customers to help drive growth.  And similar to our 2014 report and survey (“Saving Time and Money with Mobile Devices and Apps”) that found mobile apps and devices were saving small businesses significant time and money, online advertising is doing the same, and more.

The SBE Council-TechnoMetrica poll used as the basis of this report “The Digital Boost to Startups and Small Business: Online Advertising Delivers BIG Benefits,” surveyed 506 small business owners from August 12 to August 16, 2019. The online survey was with small businesses with 100 employees or fewer that advertise online for business purposes.  Based on the qualification rate for the research, TechnoMetrica estimates approximately 78% of small businesses use online advertising for their businesses. The error estimate for this survey is plus or minus 4.5 percentage points.

In their analysis about the use of online advertising and small businesses, TechnoMetrica stated it best in their Executive Summary: “Online advertising plays a key role in the development and continued growth of small businesses.”

● Online advertising is a widely used method of advertising for small businesses. The smallest of businesses rely on it heavily.

 

In their own words…comments from small business survey respondents:

“Allows us to connect with a generation that does most of their shopping online.”

“Allows us to reach a different clientele that we might have in our area. Is cost effective and easy to use.”

“Better quality of applicants with targeted hiring efforts.”

“Digital marketing is great!”

“I’m just incredibly grateful for online advertising as it gives smaller businesses the ability to advertise without going broke.”

“It’s easy and affordable – which is why we use it.”

“My business has grown substantially since I started advertising online.”

 

● Facebook is the most commonly used platform, and especially so by small businesses with the smallest revenues.

 

 

In their own words…comments from small business survey respondents:

“Facebook allows us to effectively reach out to different types of people for the different types of things we do as a company.”

“Facebook has brought me a lot of business that I would not have been able to reach with traditional advertising and marketing.”

“Getting our business out there on the internet with super affordable means by Facebook and other social media apps helps drive more customers from out of state.  We pride ourselves on having done business in every state, despite being such a small company.”

● Reaching and finding new customers is a key driver of online advertising use by small businesses, and nearly a third of them spend $500 or more a month on digital advertising.

 

In their own words…comments by small business survey respondents:

“Every online advertising platform we have used has directly helped us gain new customers. We use Facebook ads a lot to reach the people around us and Google/Yelp to reach people searching for items we have at our store.”

“It allows us to show off our work and create greater name recognition.”

“Online ads have been very good for all aspects of our business in particular finding new clients.”

“Online advertising brings in a lot more customers and revenue.”

“More clients are aware of our business.”

 

● Small businesses plan to keep their online spending steady in the near future.

 

● Small business owners view online spending as critical to their marketing and growth strategies, and that is especially so for the smallest of businesses.

● Two-thirds of the small businesses surveyed said they would lack a cost-effective means to advertise without online advertising.

In their own words…comments of small business survey respondents:

“It greatly improved business. Advertising is a turning point.”

“It has been a very useful platform for advertising. Without it, I don’t think I would have been as successful.”

“It has helped us grow quite a bit over the year that we started to use it.”

It has revitalized our business.

“If it weren’t for online options, I wouldn’t have sold anything.  If I had to go another route, it would be more expensive and more effort.”

“We are an online company. No storefront, no office. Without online advertising we likely would not exist or survive.”

“Most affordable way yet for me.”

 

● Online advertising has key advantages over traditional advertising, according to small business respondents. Reaching new customers is big advantage, and the ability to target customers is the top benefit for the smallest of businesses.

 

In their own words…comments of small business survey respondents:

“I like online advertising because it is inexpensive and can reach a large audience. Additionally, everyone is online these days. Everyone has access to the internet and so advertising there is an easy way to reach people.”

“I love how low cost online advertising can be. It allows smaller companies to enter the competition and really raises the level of creativity when it comes to advertising.”

“I’m able to target certain demographics using Facebook and other demographics on another platform.”

“In my own opinion online advertising is one of the best ways of attracting more customers and promoting your business.”

“It makes it easier to reach customers you may have never had otherwise. Such as out of state customers.”

“It reaches people we normally wouldn’t reach making it both easy and convenient for prospective customers.”

“Online advertising has gotten much more precise with geo fencing and other technological marketing advances. Facebook and LinkedIn are websites that have helped our company be more successful.”

“Online advertising helps the business a lot by enabling it to reach large number of people in a short period of time. It’s also a better substitute since other advertising platforms like TV and radio are very expensive.”

● Most small business owners feel confident about the effectiveness of online advertising, and they report solid results in new prospects and sales from their digital efforts.

 

 

In their own words…comments of small business survey respondents:

“Convenient and affordable with decent results.”

“Cost effective and very efficient.”

“I can see a direct increase since we started to advertise with Facebook and Google.”

“It is easier to reach and hire and obtain persons we need for our business and to increase the number of our customers.”

“Online advertising has increased my sales by over 25% we have sold so much online and have gotten so many new customers.”

“Online advertising helps with the staffing of our business as well as create awareness for our hotel and generate business.”

“Property owners have provided feedback that the information available online peaked their interest and led them to contact us to find out more, and they’ve become customers.”

“It’s easy and almost immediate.”

 

● Small businesses are saving time and money by using digital advertising (identified as a key advantage by 84% of small business owners). They are allocating these saved resources into higher uses for their businesses.

Employee time and owner time are being saved, and these saved hours are being channeled into operational activities that promote growth and competitiveness.

As noted in the Summary and Key Findings at the beginning of this report, and according to SBE Council estimates, employee and owner hours saved combines to an estimated $3.1 billion each week, and $162.8 billion annually for America’s small businesses. (A detailed description of SBE Council’s methodology on estimates can be found below the graphs.)

 

 

In their own words…comments from small business survey respondents:

“It allows me to focus on other issues in my small business.”

“Great tool to expand productivity.”

“It’s much easier and beneficial for tracking over print, etc.  You can actually see the conversion to sale.”

“Hubspot is a huge driver of our digital advertising mentality and we use it and the metrics it provides to run our entire marketing department.”

“Helps us find employees faster.”

“Helps us hire better candidates.”

“Managing time is the most important factor for a successful business. It helps my business to reach its goals.”

“Online advertising is highly effective and saves time for all involved.”

“Online advertising saves me time by getting the information about our company out faster and to new customers when they search for our business type.”

“Makes life much easier. We can quickly research, post ads, photos etc. to promote our business.”

How SBE Council Calculated Estimates on Total Money Saved

With labor costs being one of the biggest expenditures for many small businesses, identifying ways to reduce labor costs or utilize human capital more efficiently and effectively are always welcomed by business owners.

Employee Savings Estimates

The estimated average hours saved or more effectively used by survey respondents registered 10.93 hours per week. That is a striking number, as it amounts to more than a full-day’s work saved each week, on average. So, what does that translate into in terms of dollars saved for small businesses?

According to the latest Census Bureau data (2016), there are 5,954,684 employer firms in the United States. Out of those, 5,844,243 have less than 100 employees.

According to the latest ADP estimates (“Workforce Vitality Report” for the second quarter 2019), the average wage for employees in firms with 1-49 employees is $26.05, and for firms with between 50 and 499 employees, the average wage is 28.49. Unfortunately, the data is not broken down further to capture the average wage for firms with 100 or fewer employees.

Therefore, for the purposes of this report, we have based our estimates of savings using the more conservative number, i.e., $26.05.

With 73 percent of owners of firms with less than 100 employees reporting that online advertising saved or improved effectiveness of employee hours, according to our survey, that would equate to 4,266,297 businesses.  And with average hours saved each week coming in at 10.93, total employee hours saved or more effectively used each week are estimated at 46.6 million hours. In turn, that would come to an estimated 2.42 billion hours each year.

At a conservative assumption of $26.05 per hour average wage for small business employees, the weekly savings for U.S. small businesses due to online advertising tallies up to an estimated $1.2 billion in terms of employee hours saved or more effectively used.

Yearly Savings and Efficiencies of Employee Labor for Small Businesses: In turn, the total amount saved or more effectively used for a year is estimated at $63.2 billion.

Employer/Owner Savings

The estimated average hours saved by the small business owner regarding his or her time registered 9.28 hours per week. Again, that estimate amounts to more than a full-day’s work saved or improved each week, on average.

According to the latest Census Bureau data (2016), there are 5,954,684 employer firms in the United States. Out of those, 5,844,243 have less than 100 employees. (Please note, once again, that our savings calculations will be conservative, reflecting firms with less than 100 employees, rather than firms with 100 or fewer employees, as is the case in the survey.)

With 72 percent of owners of firms with less than 100 employees saying online advertising saved or improved the effectiveness of their hours, that would equate to 4,207,855 small businesses.

With average hours saved each week estimated at 9.28, total business owner hours saved or more effectively used each week are estimated at 39.0 million hours. In turn, that would total an estimated 2.03 billion hours each year.

According to payscale.com, small business owners earn an average annual salary of $71,679, plus an average bonus of $5,161 and profit sharing of $22,750. That’s total annual earnings of $99,950.

If we use this total earnings number and break it into an hourly compensation, that comes in at an estimated $49.05 per hour (at 2,080 hours annually). Using this hourly earnings estimate, the weekly savings for U.S. small businesses due to online advertising tallies up to an estimated $1.9 billion in terms of owner hours saved or more effectively used.

Yearly Savings and Efficiencies of Owner Time: The total amount saved or more effectively used for a year is estimated at $99.6 billion.

Total Labor Time Saved or More Efficiently Used by Small Businesses:  If we combine these estimates for employee and owner hours saved or more effectively used in U.S. small businesses due to online advertising, the estimated savings in dollars each week combines to an estimated $3.1 billion, and $162.8 billion annually.

 

● Small businesses are also saving on their advertising costs by using digital methods.

In their own words…comments from small business survey respondents:

“Online advertising has been a great success and more affordable than ever.”

“The most important feature is the effectiveness and its cheap.”

“We used to pay thousands for print ads. We reach more targets online.”

● With time and money saved, and increased sales due to online advertising, small business owners report they are looking for growth opportunities and expanding their businesses.

They are investing in new equipment, hiring new employees, increasing wages, and increasing hours for employees.

 

In their own words…comments from small business survey respondents:

“Online advertising has bought increased revenue so I’ve been able to take on more staff to deal with the increased orders that have been generated.”

“The fact that this small business has been able to advertise online has freed up my time as a manager to be in the office and do what I need to do here at work. It has also allowed me to look for new residents and new employees.”

“Very good, expanding year by year.”

“We are focused on hiring and growing staff currently rather than increasing the customer base.”

“We have had several new customers because of online advertising.  We have been able to improve our facilities and expand our staff with the additional revenue.”

“Online advertising has allowed our business to reach out to a new market and obtain new prospects. Obtaining new prospects has created an increase in actual sales, which in turn has increased our profits. As profits increase from these new sales, it allows the business to invest in more employees, new equipment and the ability to maintain and repair our fleet of trucks and equipment.”

●Online advertising is playing a pivotal role in launching startups.

The startups in our survey report that online advertising played a key role in launching their businesses, and they widely agree that online advertising is providing an affordable means to launch and grow. In short, startup companies rely heavily on online advertising.  

 

 

In their own words…comments from small business survey respondents:

“Online advertising has allowed us to create a buzz before we were even open and to bring our potential customers along on the ride with us as we got things going. Super cool.”

“Online advertising is the only way to grow a small business in the digital age.”

“The more I use online ads the more I see my business grow.”

“The ability to build a connection with customers is a huge benefit of online advertising on social media.”

Why This is Important

Entrepreneurship has lagged in the United States in recent times, particularly since the Great Recession. Consider the troubling trends on a few key measures of entrepreneurship:

● First, the U.S. Census Bureau’s tally of employer businesses came in at 6.05 million in 2007. It subsequently declined during the recession and in its immediate aftermath, and has worked to recover some ground recently. But as of 2016 (the latest year for data), the number of employer firms registered 5.95 million – still short of where the number of employer firms stood in 2007.

● Second, nonemployer firms registered 21.7 million in 2007, and subsequently declined, again, during the recession. But growth then resumed in 2010, and reached 24.8 million in 2016 and 25.7 million in 2017.

● Third, the U.S. Bureau of Labor Statistics offers data on self-employment – both incorporated and unincorporated. In terms of incorporated self-employed, it registered 5.74 million in 2007, moving up to 5.78 million in 2008, and then declining through 2011. It registered 5.85 million in 2018. As for unincorporated self-employment, it came in at 10.41 million in 2007 (which was down from a recent high of 10.59 million in 2006), and then declined steadily to 2014, and only climbing back to 9.7 million in 2018.

Taken in total, that is a generally troubling level of stagnation or decline in entrepreneurship. And while there are a variety of factors working against entrepreneurship, other developments, fortunately, work in favor of people starting a business, including technology, and that most certainly includes – as evidenced by the responses in our survey – the use of online advertising.

 

SBE Council is nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 25 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil