Description
Small and medium-size businesses are significant contributors to the Australian economy, both in terms of the number of people they employ and their output.
Connected Small Businesses
How Australian small businesses are growing
in the digital economy
2013
General use restriction
This report is prepared for Google Australia. This report is not intended to and should not
be used or relied upon by anyone else and we accept no duty of care to any other person
or entity. The report has been prepared for the purpose of better understanding the impact
of the internet on Australia’s small business sector. You should not refer to or use our name
or the advice for any other purpose.
Contents
Highlights 1
Introduction 3
Business growth 4
Jobs 7
Revenue 10
Moving along the continuum 12
Convincing the sceptics 15
Key action steps 18
References 19
1
Highlights
The online world opens up huge
opportunities for small business
across the country and holds the
potential for a broader economy-wide
transformation.
This report provides fresh insight into the role of
digital strategies in Australia’s substantial small
and medium-size business sector—a sector which
contributed $530 billion to the economy in 2010-
11, over half of private sector economic activity,
and employed over 7 million people, generating
more than two thirds of private sector employment.
A national survey of 500 small businesses
measured their level of digital engagement, such
as having a website with business information or
the use of digital marketing to attract customers.
Small businesses making full use of the internet
with high digital engagement enjoy better
business outcomes, with a $350,000 or
20% increase in annual revenue. These small
businesses also have better growth prospects,
more diversi?ed sources of revenue and a bigger
customer base.
High digitally engaged small businesses:
• Are two times more likely to be growing
revenue and earn two times more revenue
per employee than those with low engagement.
• Are job creators, being four times more likely
to be hiring than those with low engagement.
• Are three times more likely to have growth
as a business objective, use the internet as
a critical facilitator to achieve growth and
are three times more likely to be increasing
investment in digital over the next year.
• Are doing more than just creating a website,
as three-out-of-?ve small businesses have a
website, but less than one-in-?ve have high
digital engagement.
For small businesses with very low digital
engagement there is signi?cant low hanging
fruit, such as creating a simple informative
website for customers, which can increase
business performance. While these businesses
tend to prioritise survival over growth and
view the internet as peripheral - increasing
digital engagement can increase the
ef?ciency of business operation, giving
small business people more free time.
Few industries will be insulated from digital
disruption, where new technologies are driving
competition, changing markets, increasing
consumer expectations and shifting the sands
of pro?tability in the economy. The report’s
conclusion is that Australian small businesses
must consider online strategies if they are to
navigate the digital disruption of coming years.
Deloitte Access Economics
Digital engagement of
Australian small businesses
16%
SMBs making the
most of the web
with high digital
engagement
25%
SMBs that have
medium digital
engagement
24%
SMBs that have
low digital
engagement
35%
SMBs that have
very low digital
engagement and
do not use the
internet at all
Digital engagement is a measure of how will business use the internet, such as
having a simple informative website or using digital marketing to attract customers
16%
25%
24%
35%
3
Introduction
Google Australia and New Zealand commissioned
Deloitte Access Economics to provide an economic
analysis of the relationship between business
growth and digital engagement. Small and
medium-size businesses are signi?cant contributors
to the Australian economy, both in terms of the
number of people they employ and their output.
The sector contributes more than half (57%) of
private sector economic activity, $530 billion in
2010-11, and more than two-thirds of private
sector employment (70%), with small businesses
employing around 7.4 million people in 2010-11.
Approach
Data for this project were gathered from a
survey undertaken by TNS Australia (TNS). TNS
Australia surveyed a sample of 500 Australian
SMEs with fewer than 100 employees. This was
a representative sample; survey respondents
were weighted by ABS proportions for state,
industry and business size. The survey consisted
of 20-minute telephone interviews and ?eldwork
conducted in February 2013.
The research survey analysed businesses with
1-100 employees. The ABS de?nes small business
as those with up to 19 employees and medium-
size businesses as those with between 20 and
199 employees. For simplicity of expression, in this
report we refer to small business for all businesses
in the survey, even though 9% have more than
20 employees.
Qualitative results were also gathered by TNS as
part of this process through an online bulletin
board over four days. Respondents completed
tasks and questions assigned by the moderator
as well as communicating through the forum.
The results of this analysis have been used to
inform the economic research and data analysis.
The full results of the research project by TNS are
publicly available.
Deloitte Access Economics undertook economic
research and analysis to understand how the
results of the survey can be interpreted in a
broader economic context.
Digital engagement
This report describes a continuum of four levels
of digital engagement. The different levels of
digital engagement are based on the businesses’
current use of websites, how they use the Internet
and their level of digital marketing. These four
levels are de?ned as:
• Very low—the business has a business email
address and uses the internet to communicate
internally;
• Low—the business also has a website and a
presence on social networks and uses them to
market the business;
• Medium—the business also uses the internet
to reach new customers in existing markets,
to reach new customers in the local market
and to display advertising online; and
• High—the business makes use of all digital
technologies including for search engine
optimisation and search engine marketing.
Understanding how small and
medium-size businesses can effectively
use digital technologies to facilitate
their growth is valuable for businesses
and will have positive implications for
the Australian economy.
Connected Small Businesses: How Australian small businesses are growing in the digital economy 4
Business growth
Small and medium-size businesses are a signi?cant
part of the Australian economy. Small businesses
that grow potentially have a large effect on the
Australian economy.
High digitally engaged small businesses are
more than twice as likely to be growing as small
businesses with very low digital engagement.
Only 28% of small businesses with a very low
digital engagement reported that they are
growing, versus 63% of small businesses with
a high level of digital engagement.
Not having an effective digital strategy affects the
ability of small businesses to grow and compete
with their peers that do. This was also a ?nding
of the qualitative TNS research.
Small businesses with high digital engagement
earn twice as much revenue per employee as those
with low digital engagement. Median revenue
per employee for small businesses with very low
digital engagement was $87,500 while, for small
businesses with a high level of digital engagement,
revenue per employee was $187,500.
While this could re?ect a number of business
and industry factors, it also highlights the link
with digital engagement. Less than half (46%)
of small businesses at the early stages of digital
engagement reported they were expecting to
grow over the next 12 months, whereas a majority
(83%) of high digitally engaged small businesses
were expecting to grow.
The next question to consider is how much extra
revenue is associated with higher levels of digital
engagement, and the relationship between the
two. Deloitte Access Economics performed a
regression analysis to calculate how much extra
revenue a business was receiving for an extra level
of digital engagement. The analysis corrected for
the effect of employee size on revenue levels
1
.
Source: Deloitte Access Economics analysis based on TNS survey results
5 4 3 2 1
0%
20%
40%
60%
80%
100%
28%
11%
61%
48%
44%
38%
9%
11%
43% 45%
62%
High Medium Low Very Low
Steady / didn't answer
Not growing
Growing
Chart 1.1
1
Signi?cant outliers were removed from the analysis.
Small business with higher digital
digital engagement have better
business outcomes than those with
lower engagement, with a $350,000
or 20% increase in annual revenue.
Chart 1: Business growth—proportion of digital engagement level
5
Moving up a level of digital engagement was
associated with an increase in annual revenue of
around $350,000. For the average business in the
analysis earning around $1.7 million a year, this is
around 20% more revenue every year.
There are costs associated with implementing
digital strategies. Any positive impact on pro?t
would be lower than a 20% improvement.
Further, it is likely that there is a two-way
relationship between digital engagement and
revenue: ?rms with more revenue will have more
discretionary funds to invest in new strategies.
However, as we discuss in more detail later in
this document, there are good reasons to believe
digital channels are being used to grow and
diversify revenue from different customers in
different locations, improving business prospects
and diversifying business risk. There is likely to be
a substantial dividend from digital strategies.
Chart 2: Business growth expectations—proportion of digital engagement level
Source: Deloitte Access Economics analysis based on TNS survey results
5 4 3 2 1
0%
20%
40%
60%
80%
100%
High Medium Low Very Low
Steady
Don't know
Decline
Growth
Chart 1.2
39%
6%
47%
8%
12% 11%
15%
34% 32%
14%
4%
5%
50% 52%
71%
Connected Small Businesses: How Australian small businesses are growing in the digital economy 6
A survey of small businesses in Australia in 2012
found that around 60% were expecting to grow in
2013 (CPA Australia, 2012). Small businesses which
are actively pursuing a digital strategy, such as
Search Engine Optimisation (SEO) or Search Engine
Marketing (SEM) marketing strategies, are more
likely to be growing than average, while those that
are not pursuing an active digital strategy are less
likely than average to be growing.
The results of the analysis suggest that digital
engagement is associated with growth. There
is likely to be a two-way effect in operation.
Businesses that are growing are likely to
have the time and money to invest in digital
marketing strategies. At the same time, through
diversi?cation of income and by offering more
effective ways of connecting and transacting with
customers, digital strategies facilitate the growth
of small businesses.
Some businesses will survive without diversifying
their revenue sources, but others will not. Consider
that in mid-2012 only 62% of businesses that were
in operation ?ve years earlier were still in existence.
The Australian economy is in transition. Growth in
industries outside the resources sector is becoming
more important for overall growth of the Australian
economy. The relationship between high digital
engagement and growth is not limited to certain
industries or business sizes, indicating that digital
engagement is linked to growth across the
spectrum of business size and industry.
This report demonstrates that the biggest dividend
from increased digital engagement is revenue growth.
But surprisingly, most small businesses (84%) are not
making use of these digital marketing strategies.
High digital engaged businesses are those that
make use of sophisticated online digital marketing
strategies, are more likely to be growing than all
other small businesses.
Search engine marketing (SEM) and search engine
optimisation (SEO) are the two most widely used
digital marketing strategies by small businesses.
SEM is paid advertising that actively promotes a
website on a search engine result page, generally
known as ‘pay per click’ advertising. SEO is the process
of improving a website’s ranking on a search engine
results page. This is achieved by understanding how
search engines work and what people are searching
for, and adjusting or changing the content of a
website to improve a website’s ranking (Department
of Broadband, Communications and the Digital
Economy, 2012).
By actively promoting or ranking a website, higher SEM
and SEO encourage a greater number of visitors to a
website. When used in conjunction with data analytics,
they offer businesses the potential to greatly increase
their understanding of the market.
It is likely that SEM and SEO will be increasingly
important for small businesses to maintain
competitiveness and to ensure their long-term survival.
The importance of Search Engine Marketing and Search Engine Optimisation
7
Jobs
Small and medium-size businesses are the largest
employers in Australia—small businesses employ
around 70% of all private sector employees in
Australia (ABS, Cat No 8155.0, 2012). Small and
medium-size businesses also drive employment
growth in Australia.
Small businesses hire more staff than large
businesses. During 2010-11 small businesses
hired an additional 311,000 people, while large
businesses hired an extra 175,000 people —
employment growth of 6% versus 5%.
Small businesses have an important role to play
in supporting employment growth in Australia
and in reducing unemployment.
Small businesses with a high level of digital
engagement were more likely to report that they
have more staff now than a few years ago than
small businesses with very low and low levels of
digital engagement. Small businesses with a high
level of digital engagement were almost four
times more likely to have increased the number
of staff than small businesses with very low
digital engagement and twice as likely as small
businesses with a low level of digital engagement
to have hired more staff.
5 4 3 2 1
0%
20%
40%
60%
80%
100%
High Medium Low Very Low
Decreased
Stayed the same
Increased
Chart 1.3
12%
78%
10%
15%
21%
16%
66% 52%
44%
18%
27%
40%
Source: Deloitte Access Economics analysis based on TNS survey results
Chart 3: Growth in employment over the last few years—proportion of digital engagement level
Small businesses with a high level of
digital engagement create more jobs
than those that have a lower digital
engagement level.
Connected Small Businesses: How Australian small businesses are growing in the digital economy 8
During 2013 small businesses with high digital
engagement are twice as likely to be thinking
about hiring more staff than small businesses
with a low or medium engagement level, and are
almost four times more likely to be thinking about
hiring staff in the future than small businesses
with low digital engagement.
At a time when labour markets are softening
and unemployment is expected to increase, the
results of the survey suggest that in 2013 small
businesses which use online marketing strategies
to promote their businesses are going against this
trend by expecting to hire more staff.
5 4 3 2 1
Chart 1.4
0%
20%
40%
60%
80%
100%
High Medium Low Very Low
Decreased
Don't know
Stayed the same
Increased
11%
87%
2% 2% 3% 1%
1% 2% 2% 4%
78% 78% 56%
19% 17%
40%
Chart 4: Expected growth in employment this year—proportion of digital engagement level
Source: Deloitte Access Economics analysis based on TNS survey results
20%
growth
Small businesses with
high digital engagement
+ $350,000 in annual revenue
Small businesses with
low digital engagement
Moving up a level
of digital engagement
Connected Small Businesses: How Australian small businesses are growing in the digital economy 10
Revenue
Revenue is often less stable for small businesses
than large businesses. This makes revenue
diversi?cation especially important for small
business (Connolly, Norman & West, 2012).
However, when implementing digital strategies
many small businesses are initially motivated by
cost considerations. But once digital strategies
have been implemented, the biggest long-term
impacts are on revenue growth and diversi?cation
– this is a very important ?nding.
Chart 5: Sources of revenue growth—by digital engagement level
5 4 3 2 1
10%
30%
50%
70%
90%
0% 20% 40% 60% 80% 100%
High
Medium
Low
Very Low
New products / services
Existing customers
Other
New national/
international customers
New local customers
Chart 1.5
51% 6% 15% 45% 11%
2%
2%
7%
31%
39%
39%
26%
25%
38%
15%
22%
29%
78%
64%
58%
Note: Respondents were able to select more than one answer. This chart shows the source of
revenue growth as a proportion of all sources of revenue growth by digital engagement level.
Source: Deloitte Access Economics analysis based on TNS survey results
Small businesses with high digital
engagement, defned as those that
leverage the full potential of the
internet, have better growth prospects,
more diversifed sources of revenue
and a bigger customer base.
11
Less than 5% of small businesses which have
very low digital engagement claimed that new
customers interstate and overseas were the source
of their revenue growth. More than one third of
revenue growth for small businesses with very low
digital engagement was earned through upselling
to existing customers. Small businesses with a low
level of digital engagement are ?nding it harder to
reach new customers, in local markets and further
abroad, than small businesses with higher levels of
digital engagement.
Small businesses often sell to customers within
their local market initially followed by national
markets and ?nally international markets.
The results of this survey suggest that those small
businesses which are more digitally engaged are
able to reach customers more effectively than
small businesses with a very low or low level of
digital engagement. Research by Deloitte Access
Economics in 2011 found that small businesses
use the internet to ?nd additional customers
and suppliers locally.
More than one third of total revenue growth
for small businesses with a high level of digital
engagement was earned by reaching new
customers within their local market.
Overall, for these small businesses almost 75%
of revenue growth was due to growth in markets
other than existing customers.
Small businesses which are digitally engaged
are more likely to be diversifying their revenue
sources, reaching new customers within their local
market, interacting with customers outside their
local market and offering new services, than small
businesses that are not digitally engaged.
Digitally engaged small businesses are also
innovative. Highly engaged small businesses were
twice as likely to report that revenue growth
was due to new products and services as small
businesses with low digital engagement.
Businesses that grow are more likely to survive.
Small and medium-size businesses were much
more likely to exit (13.5%) than large businesses
(4.8%) (DIISRTE, 2012). Actively pursuing a digital
strategy, is one way that a business can encourage
growth, and increase its chances of survival.
Small businesses with a high level of digital
engagement are more likely to generate their
sources of revenue from a range of customers
and goods and services, than small businesses at
the lower levels of digital engagement. Digital
technology is a facilitator of growth. The types
of growth described in this section—reaching
more customers locally, reaching more customers
outside the immediate market and new goods
and services—are made possible by digital
engagement. By facilitating the diversi?cation
of sources of revenue, small businesses with a
high level of digital engagement are positioning
themselves for long term survival.
Connected Small Businesses: How Australian small businesses are growing in the digital economy 12
The vast majority of small businesses are not fully
engaging with digital marketing strategies. Many
small businesses are at a very low level of digital
engagement, and are far less likely to have
display advertising.
About a third of small businesses are at a very
low level of digital engagement, typically only
using email - essentially not using the internet
at all. Many small businesses are using the
internet to support business functions such as
to communicate internally and to market or
advertise. Only 16% of small businesses have a
high level of digital engagement, typically using
the internet for search engine optimisation and
search engine marketing.
Of the small businesses with a high level of
digital engagement, digital marketing strategies
are important—around 9 out of 10 of these
businesses use SEO and display advertising.
Small businesses are at risk of falling behind other
businesses. Large businesses are more likely to have
an internet presence with 97% of large companies
having a web presence (ABS, Cat No 8166, 2012).
A range of digital activities were analysed to
understand if there was a relationship with
current or future business growth. Activities most
strongly correlated with growth were identi?ed
and clustered. The level of digital engagement
is based on:
• the business’s current digital presence;
• how the business uses the internet; and
• the level of digital marketing.
Businesses that increase their digital engagement
move along a continuum of digital stages. This
begins by increasing the digital presence and
increasing the use of the internet for interacting
with customers—moving from very low to low/
medium. At the later stages, this will mean greater
use of digital marketing activities moving from
low/medium to high.
Moving along the continuum
Few small businesses Some small businesses Most small businesses
Digital presence
A business email address
A website
A presence on social networks
Use of the
internet
To communicate internally
To market or advertise the business
To reach new customers in existing markets
To reach new customers in local market
Use of digital
marketing
Search Engine Marketing (paid search ads)
Search Engine Optimisation
Display advertising online
Very low Low Medium High
For small businesses with very
low digital engagement there is
signifcant low hanging fruit which
can increase growth expectations.
Chart 6: The levels of digital engagement
13
Table 1: Moving along the continuum
For a small business at the very low level of digital
engagement, making an initial step is important.
Increasing the digital presence of the business—
such as getting a website or having a social media
presence—is enough to increase the chances that
a business will be growing by 54%.
A 2012 survey of small businesses found that
businesses with a website were more likely to
have more sales than they usually have in their
three-month pipeline (MYOB, 2012). Websites
have also been found to improve the effectiveness
of businesses (Sensis, 2012). By allowing small
businesses to increase their revenue and encourage
revenue diversi?cation, small businesses with a
website are more likely to grow.
For a small business around the middle of
digital engagement (the low and medium
engagement levels), there is a signi?cant dividend
from engaging with more sophisticated digital
marketing strategies. Doing so signi?cantly
increases the likelihood that a small business
will be growing. Small businesses using digital
marketing strategies—such as SEM and SEO—are
40% more likely to be growing than those using
the internet for basic business functions only. Most
(90%) of highly digitally engaged small businesses
use SEO as a marketing function, and take
advantage of the bene?ts of these functions.
There is a relationship between business
objectives and priorities across the continuum.
TNS qualitative research suggests that at the low
end of the digital continuum, small businesses
are characterised as having ad hoc or inconsistent
approaches; whilst those at the high end are
adaptive and base changes on a clear strategy
and strong analysis of what is or isn’t working.
Customers increasingly expect a higher level of
engagement with mobile and other digital devices.
A recent survey found that 35% of organisations
felt that customers would want them to provide
mobile applications within 3-5 years, up from 18%
that already offer these applications (Optus, 2012).
Consultants who work with small businesses
recognise the importance of maintaining
competitiveness with peers—small businesses
which fail to meet customer digital expectations
are at risk of falling behind their more agile peers,
and will ?nd it hard to regain their position.
The results of the survey suggest that those small
businesses with a high level of digital engagement
need to continue to innovate and adjust their
approach to digital strategies. Survey results found
that 55% of highly engaged small businesses have a
website with optimised sites for mobile, suggesting
the potential for more businesses to go mobile.
Small businesses need a ?exible and proactive
approach to their internet strategies to allow them
to evolve over time and maintain competitiveness.
Very Low Low / Medium High
Digital presence: having a
business email address.
Digital presence: having
a website.
Use of the internet: to market
or advertise the business and
to reach new customers in
existing markets.
Digital presence: having a
presence on social networks.
Use of the internet: to reach
new customers in the local
market.
Use of digital marketing:
search engine marketing and
search engine optimisation.
Source: TNS qualitative research
Barrier
Overcoming
the barrier
Uncertain of
relevance of digital
to their business
Challenged by
the cost and risks
of change
Not clear on
which actions
to take
Make measurement
part of the digital
strategy
Create customised
and suitable
strategies for each
small business
Provide guides on
which channels are
important for small
businesses strategies
15
There is a job to be done to win over the sceptics
who do not regard the internet as important.
Many small businesses are not establishing digital
strategies and this could largely be explained by a
lack of awareness of the importance of the internet.
This contrasts with perceptions that lack of skills
or funding are the main cause. Educating small
businesses on the importance of digital engagement
is the ?rst step to convince the sceptics.
The qualitative results suggest that small businesses
perceive three broad barriers to engaging with
digital innovations.
Convincing the sceptics
Chart 7: Digital will increase in importance—proportion of digital engagement
Source: Deloitte Access Economics analysis based on TNS survey results
5 4 3 2 1
Chart 1.7
0%
20%
40%
60%
80%
100%
High Medium Low Very Low
No change
Slight decrease
Slight increase in importance
Big increase
10%
32%
58%
1% 1%
39% 37%
19%
43% 40%
41%
18%
22%
40%
Small businesses with lower levels
of digital engagement need to be
convinced of the value of the internet
Connected Small Businesses: How Australian small businesses are growing in the digital economy 16
Around 10% of small businesses with a very
low level of digital engagement thought the
importance of the internet would increase over
the next 12 months. On the other hand, many
of the small businesses (41%) that already have
a high level of digital engagement expect that
the internet will increase in importance.
Therefore, there is a job to be done to convince
small businesses with a lower level of digital
engagement to invest in online marketing activities.
We note that the detailed results suggest that
businesses that are less likely to see the internet as
growing in importance are more likely to be in certain
sectors, such as primary industry and construction.
And we recognise that digital engagement is more
important in some sectors. Nevertheless, there are
opportunities across the economy.
The survey shows that small businesses with
a high level of digital engagement spend a
greater amount on advertising (as a proportion
of turnover) than small businesses with lower
levels of digital engagement.
There are no clear trends in the proportion
of marketing budgets spent online. For small
businesses with a high level of digital engagement
almost half of their marketing expenditure is spent
on online activities, while for the medium and low
the proportion is only 17% and 22%, respectively.
Small businesses with a very low level of digital
engagement spend the greatest proportion (83%)
of their marketing budget on online marketing.
However, it is likely that this is a large proportion
of a small amount of money spent purchasing
an online listing, instead of investing in a
sophisticated online marketing strategy.
These results suggest that small businesses with
very low and low levels of digital engagement
need to be convinced of the impact that these
activities can have for their businesses. Many small
businesses are concerned about the return on
investment (ROI) from digital activities. Formal ROI
analysis demonstrates the bene?ts of pursuing a
digital strategy—creating a digital strategy will
initially take time and cost money, but there are
signi?cant bene?ts over time.
17
“They (small businesses) are
becoming forced to have a more
sophisticated approach. Embracing
clear metrics and measures of ROI
as indicators of whether or not
their business is working. This
would include leveraging analytics
services like Google Analytics,
Mixpanel etc. Plus internally
getting a better understanding
of ROI and even breaking it
down to ROI by channel.”
The path towards digital engagement will vary. When
embarking on a digital strategy businesses should:
• Clarify the strategy—for digital as part of their
broader business actions;
• Customise the strategy—digital should
be relevant to how a business operates and
interacts with customers; and
• Identify the support needed—both for the
technical aspects and for the marketing strategy.
Source: TNS qualitative research
There are, however, signs that that small businesses
are thinking about their level of digital engagement
and considering their online marketing strategies.
Around one quarter of small businesses with a very
low level of digital engagement plan to build a
website in the next 12 months.
Similarly, results of a recent survey suggest
that businesses are looking to increase their
expenditure on online marketing (56% of
businesses said they would increase their online
marketing budget throughout 2013) and that
relative to traditional marketing strategies growth
in this area is strong (McIntyre, 2013). The need
to keep pace with the shifting trends of online
advertising were apparent in the qualitative results
of the survey, as consultants considered this the
biggest challenge facing small businesses.
Connected Small Businesses: How Australian small businesses are growing in the digital economy 18
Those businesses with higher levels of digital
engagement have goals which are focused on
attracting new customers. For small businesses at
the early stages of digital engagement, goals are
more likely to be focused internally.
Research has found that the internet is a catalyst
for the success for small businesses, improving
how they interact with their customers and
suppliers and manage their internal operations
(Deloitte Access Economics, 2011). Nearly half
of businesses at the highest level of digital
engagement stated that growth is a goal for their
businesses. Small businesses at the initial stages of
digital engagement are more likely to be aiming to
sustain the business.
There is some uncertainty about which digital
channels are the most appropriate and how to
make the best use of these channels. Businesses
need a road map which outlines the steps
necessary to build an effective digital strategy.
Receiving guidance on the steps and actions
which are suitable for their business can assist
businesses to overcome any uncertainty about
developing a digital strategy.
In a fast-changing digital environment, businesses
need to consider very carefully their priorities and
business goals. Simply moving to an outward-
orientated digital strategy, such as building a
low-cost website, will increase the chances that a
small business is currently growing from 28% to
43%. Progressing through the continuum towards
from a medium level of engagement to a more
advanced digital strategy will increase the chances
that a business will be growing from 45% to 62%.
To maintain an edge over their competitors, small
businesses should consider developing an active
digital strategy which includes an online marketing
strategy. For small businesses at the early stages
of digital engagement, the ?rst step is establishing
a website and developing an online presence.
The next step is developing a more sophisticated
online marketing strategy, which should include
SEM and SEO.
Key action steps
Small businesses need a road map
outlining the integration of an
effective digital strategy into their
business model.
5 4 3 2 1
0% 20% 40% 60% 80% 100%
High
Medium
Low
Very Low
Attract new customers
Provide better customer service
Improve quality / standards
Maintain business (survive)
Increase marketing/advertising
Revenue (pro?t)
Chart 1.8
50%
13% 20% 38% 34% 76%
14% 40%
18% 35%
9% 11%
16%
10%
14%
23%
20%
21%
29%
34%
22%
45%
47%
38%
Note: Respondents were able to select more than one answer. This is a proportion of the top 6 business goals reported by all small businesses.
Source: Deloitte Access Economics analysis based on TNS survey results
Chart 8: Business objectives—proportion of digital engagement level
19
References
Australian Bureau of Statistics, Cat no 8155.00 ‘Australian Industry 2010-2011’, (2012)
Australian Bureau of Statistics, Cat no 8158.00 ‘Innovation in Australian Business 2010-11’, (2012)
Australian Bureau of Statistics, Cat no 8165.00 ‘Counts of Australian Businesses, including Entries and Exits, June
2007 to June 2011’, (2012)
Connolly. E, Norman. D and West. T, ‘Small Business: An Economic Overview’, Reserve Bank of Australia, (May 2012)
CPA Australia Asia –‘Paci?c Small Business Survey’ (2012)
Deloitte Access Economics ‘The Connected Continent: How the Internet is transforming the Australian economy’ (2011)
Deloitte Access Economics ‘Optus Future of Business Report: Research and Findings’, (2012)
Department of Broadband, Communications and the Digital Economy ‘Online Marketing Tools’, (2012).
www.digitalbusiness.gov.au/marketing-tips/online-marketing-tools/
Department of Industry, Innovation, Science, Research, and Tertiary Education, December 2012,
‘Australian Small Business: Key Statistics and Analysis’ (2012)
McIntyre, Paul ‘Fizz goes out of social sector’, Australian Financial Review, (March 2013)
MYOB, MYOB Business Monitor, (various releases), MYOB, Sydney, (2012)
Reserve Bank of Australia, Statement of Monetary policy, March (2013)
Sensis e-Business Report: The Online Experience of Small and Medium Enterprises (2012)
KPMG Global, Rethinking Human Resources in a Changing World (2012).
Jobvite Survey, Social Job Seeker 2012 (US market) (2012).
McKinsey Quarterly, How social technologies are extending the organization (November, 2011).
Qiang 2009, Information and Communications for Development 2009:
Extending Reach and Increasing Impact, World Bank.
Sorrell, M, Think Tank: Sir Martin Sorrell on Grey Swans and Opportunities (2013).
Sydney Morning Herald, Social media facing bans in workplace agreements, January, 2012a.
Sydney Morning Herald, So what is cloud?, July, 2012b.
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doc_759745204.pdf
Small and medium-size businesses are significant contributors to the Australian economy, both in terms of the number of people they employ and their output.
Connected Small Businesses
How Australian small businesses are growing
in the digital economy
2013
General use restriction
This report is prepared for Google Australia. This report is not intended to and should not
be used or relied upon by anyone else and we accept no duty of care to any other person
or entity. The report has been prepared for the purpose of better understanding the impact
of the internet on Australia’s small business sector. You should not refer to or use our name
or the advice for any other purpose.
Contents
Highlights 1
Introduction 3
Business growth 4
Jobs 7
Revenue 10
Moving along the continuum 12
Convincing the sceptics 15
Key action steps 18
References 19
1
Highlights
The online world opens up huge
opportunities for small business
across the country and holds the
potential for a broader economy-wide
transformation.
This report provides fresh insight into the role of
digital strategies in Australia’s substantial small
and medium-size business sector—a sector which
contributed $530 billion to the economy in 2010-
11, over half of private sector economic activity,
and employed over 7 million people, generating
more than two thirds of private sector employment.
A national survey of 500 small businesses
measured their level of digital engagement, such
as having a website with business information or
the use of digital marketing to attract customers.
Small businesses making full use of the internet
with high digital engagement enjoy better
business outcomes, with a $350,000 or
20% increase in annual revenue. These small
businesses also have better growth prospects,
more diversi?ed sources of revenue and a bigger
customer base.
High digitally engaged small businesses:
• Are two times more likely to be growing
revenue and earn two times more revenue
per employee than those with low engagement.
• Are job creators, being four times more likely
to be hiring than those with low engagement.
• Are three times more likely to have growth
as a business objective, use the internet as
a critical facilitator to achieve growth and
are three times more likely to be increasing
investment in digital over the next year.
• Are doing more than just creating a website,
as three-out-of-?ve small businesses have a
website, but less than one-in-?ve have high
digital engagement.
For small businesses with very low digital
engagement there is signi?cant low hanging
fruit, such as creating a simple informative
website for customers, which can increase
business performance. While these businesses
tend to prioritise survival over growth and
view the internet as peripheral - increasing
digital engagement can increase the
ef?ciency of business operation, giving
small business people more free time.
Few industries will be insulated from digital
disruption, where new technologies are driving
competition, changing markets, increasing
consumer expectations and shifting the sands
of pro?tability in the economy. The report’s
conclusion is that Australian small businesses
must consider online strategies if they are to
navigate the digital disruption of coming years.
Deloitte Access Economics
Digital engagement of
Australian small businesses
16%
SMBs making the
most of the web
with high digital
engagement
25%
SMBs that have
medium digital
engagement
24%
SMBs that have
low digital
engagement
35%
SMBs that have
very low digital
engagement and
do not use the
internet at all
Digital engagement is a measure of how will business use the internet, such as
having a simple informative website or using digital marketing to attract customers
16%
25%
24%
35%
3
Introduction
Google Australia and New Zealand commissioned
Deloitte Access Economics to provide an economic
analysis of the relationship between business
growth and digital engagement. Small and
medium-size businesses are signi?cant contributors
to the Australian economy, both in terms of the
number of people they employ and their output.
The sector contributes more than half (57%) of
private sector economic activity, $530 billion in
2010-11, and more than two-thirds of private
sector employment (70%), with small businesses
employing around 7.4 million people in 2010-11.
Approach
Data for this project were gathered from a
survey undertaken by TNS Australia (TNS). TNS
Australia surveyed a sample of 500 Australian
SMEs with fewer than 100 employees. This was
a representative sample; survey respondents
were weighted by ABS proportions for state,
industry and business size. The survey consisted
of 20-minute telephone interviews and ?eldwork
conducted in February 2013.
The research survey analysed businesses with
1-100 employees. The ABS de?nes small business
as those with up to 19 employees and medium-
size businesses as those with between 20 and
199 employees. For simplicity of expression, in this
report we refer to small business for all businesses
in the survey, even though 9% have more than
20 employees.
Qualitative results were also gathered by TNS as
part of this process through an online bulletin
board over four days. Respondents completed
tasks and questions assigned by the moderator
as well as communicating through the forum.
The results of this analysis have been used to
inform the economic research and data analysis.
The full results of the research project by TNS are
publicly available.
Deloitte Access Economics undertook economic
research and analysis to understand how the
results of the survey can be interpreted in a
broader economic context.
Digital engagement
This report describes a continuum of four levels
of digital engagement. The different levels of
digital engagement are based on the businesses’
current use of websites, how they use the Internet
and their level of digital marketing. These four
levels are de?ned as:
• Very low—the business has a business email
address and uses the internet to communicate
internally;
• Low—the business also has a website and a
presence on social networks and uses them to
market the business;
• Medium—the business also uses the internet
to reach new customers in existing markets,
to reach new customers in the local market
and to display advertising online; and
• High—the business makes use of all digital
technologies including for search engine
optimisation and search engine marketing.
Understanding how small and
medium-size businesses can effectively
use digital technologies to facilitate
their growth is valuable for businesses
and will have positive implications for
the Australian economy.
Connected Small Businesses: How Australian small businesses are growing in the digital economy 4
Business growth
Small and medium-size businesses are a signi?cant
part of the Australian economy. Small businesses
that grow potentially have a large effect on the
Australian economy.
High digitally engaged small businesses are
more than twice as likely to be growing as small
businesses with very low digital engagement.
Only 28% of small businesses with a very low
digital engagement reported that they are
growing, versus 63% of small businesses with
a high level of digital engagement.
Not having an effective digital strategy affects the
ability of small businesses to grow and compete
with their peers that do. This was also a ?nding
of the qualitative TNS research.
Small businesses with high digital engagement
earn twice as much revenue per employee as those
with low digital engagement. Median revenue
per employee for small businesses with very low
digital engagement was $87,500 while, for small
businesses with a high level of digital engagement,
revenue per employee was $187,500.
While this could re?ect a number of business
and industry factors, it also highlights the link
with digital engagement. Less than half (46%)
of small businesses at the early stages of digital
engagement reported they were expecting to
grow over the next 12 months, whereas a majority
(83%) of high digitally engaged small businesses
were expecting to grow.
The next question to consider is how much extra
revenue is associated with higher levels of digital
engagement, and the relationship between the
two. Deloitte Access Economics performed a
regression analysis to calculate how much extra
revenue a business was receiving for an extra level
of digital engagement. The analysis corrected for
the effect of employee size on revenue levels
1
.
Source: Deloitte Access Economics analysis based on TNS survey results
5 4 3 2 1
0%
20%
40%
60%
80%
100%
28%
11%
61%
48%
44%
38%
9%
11%
43% 45%
62%
High Medium Low Very Low
Steady / didn't answer
Not growing
Growing
Chart 1.1
1
Signi?cant outliers were removed from the analysis.
Small business with higher digital
digital engagement have better
business outcomes than those with
lower engagement, with a $350,000
or 20% increase in annual revenue.
Chart 1: Business growth—proportion of digital engagement level
5
Moving up a level of digital engagement was
associated with an increase in annual revenue of
around $350,000. For the average business in the
analysis earning around $1.7 million a year, this is
around 20% more revenue every year.
There are costs associated with implementing
digital strategies. Any positive impact on pro?t
would be lower than a 20% improvement.
Further, it is likely that there is a two-way
relationship between digital engagement and
revenue: ?rms with more revenue will have more
discretionary funds to invest in new strategies.
However, as we discuss in more detail later in
this document, there are good reasons to believe
digital channels are being used to grow and
diversify revenue from different customers in
different locations, improving business prospects
and diversifying business risk. There is likely to be
a substantial dividend from digital strategies.
Chart 2: Business growth expectations—proportion of digital engagement level
Source: Deloitte Access Economics analysis based on TNS survey results
5 4 3 2 1
0%
20%
40%
60%
80%
100%
High Medium Low Very Low
Steady
Don't know
Decline
Growth
Chart 1.2
39%
6%
47%
8%
12% 11%
15%
34% 32%
14%
4%
5%
50% 52%
71%
Connected Small Businesses: How Australian small businesses are growing in the digital economy 6
A survey of small businesses in Australia in 2012
found that around 60% were expecting to grow in
2013 (CPA Australia, 2012). Small businesses which
are actively pursuing a digital strategy, such as
Search Engine Optimisation (SEO) or Search Engine
Marketing (SEM) marketing strategies, are more
likely to be growing than average, while those that
are not pursuing an active digital strategy are less
likely than average to be growing.
The results of the analysis suggest that digital
engagement is associated with growth. There
is likely to be a two-way effect in operation.
Businesses that are growing are likely to
have the time and money to invest in digital
marketing strategies. At the same time, through
diversi?cation of income and by offering more
effective ways of connecting and transacting with
customers, digital strategies facilitate the growth
of small businesses.
Some businesses will survive without diversifying
their revenue sources, but others will not. Consider
that in mid-2012 only 62% of businesses that were
in operation ?ve years earlier were still in existence.
The Australian economy is in transition. Growth in
industries outside the resources sector is becoming
more important for overall growth of the Australian
economy. The relationship between high digital
engagement and growth is not limited to certain
industries or business sizes, indicating that digital
engagement is linked to growth across the
spectrum of business size and industry.
This report demonstrates that the biggest dividend
from increased digital engagement is revenue growth.
But surprisingly, most small businesses (84%) are not
making use of these digital marketing strategies.
High digital engaged businesses are those that
make use of sophisticated online digital marketing
strategies, are more likely to be growing than all
other small businesses.
Search engine marketing (SEM) and search engine
optimisation (SEO) are the two most widely used
digital marketing strategies by small businesses.
SEM is paid advertising that actively promotes a
website on a search engine result page, generally
known as ‘pay per click’ advertising. SEO is the process
of improving a website’s ranking on a search engine
results page. This is achieved by understanding how
search engines work and what people are searching
for, and adjusting or changing the content of a
website to improve a website’s ranking (Department
of Broadband, Communications and the Digital
Economy, 2012).
By actively promoting or ranking a website, higher SEM
and SEO encourage a greater number of visitors to a
website. When used in conjunction with data analytics,
they offer businesses the potential to greatly increase
their understanding of the market.
It is likely that SEM and SEO will be increasingly
important for small businesses to maintain
competitiveness and to ensure their long-term survival.
The importance of Search Engine Marketing and Search Engine Optimisation
7
Jobs
Small and medium-size businesses are the largest
employers in Australia—small businesses employ
around 70% of all private sector employees in
Australia (ABS, Cat No 8155.0, 2012). Small and
medium-size businesses also drive employment
growth in Australia.
Small businesses hire more staff than large
businesses. During 2010-11 small businesses
hired an additional 311,000 people, while large
businesses hired an extra 175,000 people —
employment growth of 6% versus 5%.
Small businesses have an important role to play
in supporting employment growth in Australia
and in reducing unemployment.
Small businesses with a high level of digital
engagement were more likely to report that they
have more staff now than a few years ago than
small businesses with very low and low levels of
digital engagement. Small businesses with a high
level of digital engagement were almost four
times more likely to have increased the number
of staff than small businesses with very low
digital engagement and twice as likely as small
businesses with a low level of digital engagement
to have hired more staff.
5 4 3 2 1
0%
20%
40%
60%
80%
100%
High Medium Low Very Low
Decreased
Stayed the same
Increased
Chart 1.3
12%
78%
10%
15%
21%
16%
66% 52%
44%
18%
27%
40%
Source: Deloitte Access Economics analysis based on TNS survey results
Chart 3: Growth in employment over the last few years—proportion of digital engagement level
Small businesses with a high level of
digital engagement create more jobs
than those that have a lower digital
engagement level.
Connected Small Businesses: How Australian small businesses are growing in the digital economy 8
During 2013 small businesses with high digital
engagement are twice as likely to be thinking
about hiring more staff than small businesses
with a low or medium engagement level, and are
almost four times more likely to be thinking about
hiring staff in the future than small businesses
with low digital engagement.
At a time when labour markets are softening
and unemployment is expected to increase, the
results of the survey suggest that in 2013 small
businesses which use online marketing strategies
to promote their businesses are going against this
trend by expecting to hire more staff.
5 4 3 2 1
Chart 1.4
0%
20%
40%
60%
80%
100%
High Medium Low Very Low
Decreased
Don't know
Stayed the same
Increased
11%
87%
2% 2% 3% 1%
1% 2% 2% 4%
78% 78% 56%
19% 17%
40%
Chart 4: Expected growth in employment this year—proportion of digital engagement level
Source: Deloitte Access Economics analysis based on TNS survey results
20%
growth
Small businesses with
high digital engagement
+ $350,000 in annual revenue
Small businesses with
low digital engagement
Moving up a level
of digital engagement
Connected Small Businesses: How Australian small businesses are growing in the digital economy 10
Revenue
Revenue is often less stable for small businesses
than large businesses. This makes revenue
diversi?cation especially important for small
business (Connolly, Norman & West, 2012).
However, when implementing digital strategies
many small businesses are initially motivated by
cost considerations. But once digital strategies
have been implemented, the biggest long-term
impacts are on revenue growth and diversi?cation
– this is a very important ?nding.
Chart 5: Sources of revenue growth—by digital engagement level
5 4 3 2 1
10%
30%
50%
70%
90%
0% 20% 40% 60% 80% 100%
High
Medium
Low
Very Low
New products / services
Existing customers
Other
New national/
international customers
New local customers
Chart 1.5
51% 6% 15% 45% 11%
2%
2%
7%
31%
39%
39%
26%
25%
38%
15%
22%
29%
78%
64%
58%
Note: Respondents were able to select more than one answer. This chart shows the source of
revenue growth as a proportion of all sources of revenue growth by digital engagement level.
Source: Deloitte Access Economics analysis based on TNS survey results
Small businesses with high digital
engagement, defned as those that
leverage the full potential of the
internet, have better growth prospects,
more diversifed sources of revenue
and a bigger customer base.
11
Less than 5% of small businesses which have
very low digital engagement claimed that new
customers interstate and overseas were the source
of their revenue growth. More than one third of
revenue growth for small businesses with very low
digital engagement was earned through upselling
to existing customers. Small businesses with a low
level of digital engagement are ?nding it harder to
reach new customers, in local markets and further
abroad, than small businesses with higher levels of
digital engagement.
Small businesses often sell to customers within
their local market initially followed by national
markets and ?nally international markets.
The results of this survey suggest that those small
businesses which are more digitally engaged are
able to reach customers more effectively than
small businesses with a very low or low level of
digital engagement. Research by Deloitte Access
Economics in 2011 found that small businesses
use the internet to ?nd additional customers
and suppliers locally.
More than one third of total revenue growth
for small businesses with a high level of digital
engagement was earned by reaching new
customers within their local market.
Overall, for these small businesses almost 75%
of revenue growth was due to growth in markets
other than existing customers.
Small businesses which are digitally engaged
are more likely to be diversifying their revenue
sources, reaching new customers within their local
market, interacting with customers outside their
local market and offering new services, than small
businesses that are not digitally engaged.
Digitally engaged small businesses are also
innovative. Highly engaged small businesses were
twice as likely to report that revenue growth
was due to new products and services as small
businesses with low digital engagement.
Businesses that grow are more likely to survive.
Small and medium-size businesses were much
more likely to exit (13.5%) than large businesses
(4.8%) (DIISRTE, 2012). Actively pursuing a digital
strategy, is one way that a business can encourage
growth, and increase its chances of survival.
Small businesses with a high level of digital
engagement are more likely to generate their
sources of revenue from a range of customers
and goods and services, than small businesses at
the lower levels of digital engagement. Digital
technology is a facilitator of growth. The types
of growth described in this section—reaching
more customers locally, reaching more customers
outside the immediate market and new goods
and services—are made possible by digital
engagement. By facilitating the diversi?cation
of sources of revenue, small businesses with a
high level of digital engagement are positioning
themselves for long term survival.
Connected Small Businesses: How Australian small businesses are growing in the digital economy 12
The vast majority of small businesses are not fully
engaging with digital marketing strategies. Many
small businesses are at a very low level of digital
engagement, and are far less likely to have
display advertising.
About a third of small businesses are at a very
low level of digital engagement, typically only
using email - essentially not using the internet
at all. Many small businesses are using the
internet to support business functions such as
to communicate internally and to market or
advertise. Only 16% of small businesses have a
high level of digital engagement, typically using
the internet for search engine optimisation and
search engine marketing.
Of the small businesses with a high level of
digital engagement, digital marketing strategies
are important—around 9 out of 10 of these
businesses use SEO and display advertising.
Small businesses are at risk of falling behind other
businesses. Large businesses are more likely to have
an internet presence with 97% of large companies
having a web presence (ABS, Cat No 8166, 2012).
A range of digital activities were analysed to
understand if there was a relationship with
current or future business growth. Activities most
strongly correlated with growth were identi?ed
and clustered. The level of digital engagement
is based on:
• the business’s current digital presence;
• how the business uses the internet; and
• the level of digital marketing.
Businesses that increase their digital engagement
move along a continuum of digital stages. This
begins by increasing the digital presence and
increasing the use of the internet for interacting
with customers—moving from very low to low/
medium. At the later stages, this will mean greater
use of digital marketing activities moving from
low/medium to high.
Moving along the continuum
Few small businesses Some small businesses Most small businesses
Digital presence
A business email address
A website
A presence on social networks
Use of the
internet
To communicate internally
To market or advertise the business
To reach new customers in existing markets
To reach new customers in local market
Use of digital
marketing
Search Engine Marketing (paid search ads)
Search Engine Optimisation
Display advertising online
Very low Low Medium High
For small businesses with very
low digital engagement there is
signifcant low hanging fruit which
can increase growth expectations.
Chart 6: The levels of digital engagement
13
Table 1: Moving along the continuum
For a small business at the very low level of digital
engagement, making an initial step is important.
Increasing the digital presence of the business—
such as getting a website or having a social media
presence—is enough to increase the chances that
a business will be growing by 54%.
A 2012 survey of small businesses found that
businesses with a website were more likely to
have more sales than they usually have in their
three-month pipeline (MYOB, 2012). Websites
have also been found to improve the effectiveness
of businesses (Sensis, 2012). By allowing small
businesses to increase their revenue and encourage
revenue diversi?cation, small businesses with a
website are more likely to grow.
For a small business around the middle of
digital engagement (the low and medium
engagement levels), there is a signi?cant dividend
from engaging with more sophisticated digital
marketing strategies. Doing so signi?cantly
increases the likelihood that a small business
will be growing. Small businesses using digital
marketing strategies—such as SEM and SEO—are
40% more likely to be growing than those using
the internet for basic business functions only. Most
(90%) of highly digitally engaged small businesses
use SEO as a marketing function, and take
advantage of the bene?ts of these functions.
There is a relationship between business
objectives and priorities across the continuum.
TNS qualitative research suggests that at the low
end of the digital continuum, small businesses
are characterised as having ad hoc or inconsistent
approaches; whilst those at the high end are
adaptive and base changes on a clear strategy
and strong analysis of what is or isn’t working.
Customers increasingly expect a higher level of
engagement with mobile and other digital devices.
A recent survey found that 35% of organisations
felt that customers would want them to provide
mobile applications within 3-5 years, up from 18%
that already offer these applications (Optus, 2012).
Consultants who work with small businesses
recognise the importance of maintaining
competitiveness with peers—small businesses
which fail to meet customer digital expectations
are at risk of falling behind their more agile peers,
and will ?nd it hard to regain their position.
The results of the survey suggest that those small
businesses with a high level of digital engagement
need to continue to innovate and adjust their
approach to digital strategies. Survey results found
that 55% of highly engaged small businesses have a
website with optimised sites for mobile, suggesting
the potential for more businesses to go mobile.
Small businesses need a ?exible and proactive
approach to their internet strategies to allow them
to evolve over time and maintain competitiveness.
Very Low Low / Medium High
Digital presence: having a
business email address.
Digital presence: having
a website.
Use of the internet: to market
or advertise the business and
to reach new customers in
existing markets.
Digital presence: having a
presence on social networks.
Use of the internet: to reach
new customers in the local
market.
Use of digital marketing:
search engine marketing and
search engine optimisation.
Source: TNS qualitative research
Barrier
Overcoming
the barrier
Uncertain of
relevance of digital
to their business
Challenged by
the cost and risks
of change
Not clear on
which actions
to take
Make measurement
part of the digital
strategy
Create customised
and suitable
strategies for each
small business
Provide guides on
which channels are
important for small
businesses strategies
15
There is a job to be done to win over the sceptics
who do not regard the internet as important.
Many small businesses are not establishing digital
strategies and this could largely be explained by a
lack of awareness of the importance of the internet.
This contrasts with perceptions that lack of skills
or funding are the main cause. Educating small
businesses on the importance of digital engagement
is the ?rst step to convince the sceptics.
The qualitative results suggest that small businesses
perceive three broad barriers to engaging with
digital innovations.
Convincing the sceptics
Chart 7: Digital will increase in importance—proportion of digital engagement
Source: Deloitte Access Economics analysis based on TNS survey results
5 4 3 2 1
Chart 1.7
0%
20%
40%
60%
80%
100%
High Medium Low Very Low
No change
Slight decrease
Slight increase in importance
Big increase
10%
32%
58%
1% 1%
39% 37%
19%
43% 40%
41%
18%
22%
40%
Small businesses with lower levels
of digital engagement need to be
convinced of the value of the internet
Connected Small Businesses: How Australian small businesses are growing in the digital economy 16
Around 10% of small businesses with a very
low level of digital engagement thought the
importance of the internet would increase over
the next 12 months. On the other hand, many
of the small businesses (41%) that already have
a high level of digital engagement expect that
the internet will increase in importance.
Therefore, there is a job to be done to convince
small businesses with a lower level of digital
engagement to invest in online marketing activities.
We note that the detailed results suggest that
businesses that are less likely to see the internet as
growing in importance are more likely to be in certain
sectors, such as primary industry and construction.
And we recognise that digital engagement is more
important in some sectors. Nevertheless, there are
opportunities across the economy.
The survey shows that small businesses with
a high level of digital engagement spend a
greater amount on advertising (as a proportion
of turnover) than small businesses with lower
levels of digital engagement.
There are no clear trends in the proportion
of marketing budgets spent online. For small
businesses with a high level of digital engagement
almost half of their marketing expenditure is spent
on online activities, while for the medium and low
the proportion is only 17% and 22%, respectively.
Small businesses with a very low level of digital
engagement spend the greatest proportion (83%)
of their marketing budget on online marketing.
However, it is likely that this is a large proportion
of a small amount of money spent purchasing
an online listing, instead of investing in a
sophisticated online marketing strategy.
These results suggest that small businesses with
very low and low levels of digital engagement
need to be convinced of the impact that these
activities can have for their businesses. Many small
businesses are concerned about the return on
investment (ROI) from digital activities. Formal ROI
analysis demonstrates the bene?ts of pursuing a
digital strategy—creating a digital strategy will
initially take time and cost money, but there are
signi?cant bene?ts over time.
17
“They (small businesses) are
becoming forced to have a more
sophisticated approach. Embracing
clear metrics and measures of ROI
as indicators of whether or not
their business is working. This
would include leveraging analytics
services like Google Analytics,
Mixpanel etc. Plus internally
getting a better understanding
of ROI and even breaking it
down to ROI by channel.”
The path towards digital engagement will vary. When
embarking on a digital strategy businesses should:
• Clarify the strategy—for digital as part of their
broader business actions;
• Customise the strategy—digital should
be relevant to how a business operates and
interacts with customers; and
• Identify the support needed—both for the
technical aspects and for the marketing strategy.
Source: TNS qualitative research
There are, however, signs that that small businesses
are thinking about their level of digital engagement
and considering their online marketing strategies.
Around one quarter of small businesses with a very
low level of digital engagement plan to build a
website in the next 12 months.
Similarly, results of a recent survey suggest
that businesses are looking to increase their
expenditure on online marketing (56% of
businesses said they would increase their online
marketing budget throughout 2013) and that
relative to traditional marketing strategies growth
in this area is strong (McIntyre, 2013). The need
to keep pace with the shifting trends of online
advertising were apparent in the qualitative results
of the survey, as consultants considered this the
biggest challenge facing small businesses.
Connected Small Businesses: How Australian small businesses are growing in the digital economy 18
Those businesses with higher levels of digital
engagement have goals which are focused on
attracting new customers. For small businesses at
the early stages of digital engagement, goals are
more likely to be focused internally.
Research has found that the internet is a catalyst
for the success for small businesses, improving
how they interact with their customers and
suppliers and manage their internal operations
(Deloitte Access Economics, 2011). Nearly half
of businesses at the highest level of digital
engagement stated that growth is a goal for their
businesses. Small businesses at the initial stages of
digital engagement are more likely to be aiming to
sustain the business.
There is some uncertainty about which digital
channels are the most appropriate and how to
make the best use of these channels. Businesses
need a road map which outlines the steps
necessary to build an effective digital strategy.
Receiving guidance on the steps and actions
which are suitable for their business can assist
businesses to overcome any uncertainty about
developing a digital strategy.
In a fast-changing digital environment, businesses
need to consider very carefully their priorities and
business goals. Simply moving to an outward-
orientated digital strategy, such as building a
low-cost website, will increase the chances that a
small business is currently growing from 28% to
43%. Progressing through the continuum towards
from a medium level of engagement to a more
advanced digital strategy will increase the chances
that a business will be growing from 45% to 62%.
To maintain an edge over their competitors, small
businesses should consider developing an active
digital strategy which includes an online marketing
strategy. For small businesses at the early stages
of digital engagement, the ?rst step is establishing
a website and developing an online presence.
The next step is developing a more sophisticated
online marketing strategy, which should include
SEM and SEO.
Key action steps
Small businesses need a road map
outlining the integration of an
effective digital strategy into their
business model.
5 4 3 2 1
0% 20% 40% 60% 80% 100%
High
Medium
Low
Very Low
Attract new customers
Provide better customer service
Improve quality / standards
Maintain business (survive)
Increase marketing/advertising
Revenue (pro?t)
Chart 1.8
50%
13% 20% 38% 34% 76%
14% 40%
18% 35%
9% 11%
16%
10%
14%
23%
20%
21%
29%
34%
22%
45%
47%
38%
Note: Respondents were able to select more than one answer. This is a proportion of the top 6 business goals reported by all small businesses.
Source: Deloitte Access Economics analysis based on TNS survey results
Chart 8: Business objectives—proportion of digital engagement level
19
References
Australian Bureau of Statistics, Cat no 8155.00 ‘Australian Industry 2010-2011’, (2012)
Australian Bureau of Statistics, Cat no 8158.00 ‘Innovation in Australian Business 2010-11’, (2012)
Australian Bureau of Statistics, Cat no 8165.00 ‘Counts of Australian Businesses, including Entries and Exits, June
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Connolly. E, Norman. D and West. T, ‘Small Business: An Economic Overview’, Reserve Bank of Australia, (May 2012)
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