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How much do smb companies spend on conversion rate optimization and on digital advertising annually in the US?
Hello! Thanks for asking Wonder to help with your research needs. I understand you are requesting for the number of SMBs and the average annual amounts these SMBs spend on conversion rate optimization and on digital advertising.
The short version of my answer is that:
1. Using Gartner's definition of an SMB and the Census Bureau's latest data on number of firms by employment size, I estimate that there are around 17 million SMBs in the United States.
2. BIA/Kelsey's annual Local Commerce Monitor report appears to be the most reliable source of SMB advertising and marketing spending. Using information from BIA/Kelsey, I estimate that the average amount an SMB spends on digital advertising is $988 per year. This is especially true for SMBs that spend less than $25,000 annually on advertising and promotion. For those SMBs that spend more than $25,000, the average annual digital advertising spend is $30,068. The portion of ad budget that SMBs allocate to digital appears to be increasing.
3. The amount an SMB spends, on average, on conversion rate optimization, is not publicly available. However, using data from BrightLocal and EConsultancy, I estimate that the amount spent per year is $240.
Below you will find the details of how I arrived at this answer.
METHODOLOGY
To answer your question, I first looked for definitions of SMB as it appears there is no standard way of classifying businesses by size. After selecting the definition that is most applicable in this case, I checked the Census Bureau's data on the number of firms by employment size and computed for the number of SMBs in the United States.
Afterwards, I proceeded with searching for sources containing helpful information on the amount SMBs spend on digital advertising and conversion rate optimization (CRO). To check for trends, I searched among both recently published materials and older sources. The amount an SMB spends on CRO is not publicly available, so I expanded my search beyond SMBs.
The sources that I and my colleagues found are a combination of articles, survey results, reports, and data tables. I performed a few calculations to arrive at final estimates.
SMB DEFINITION
Gartner defines small and midsize businesses by either the number of employees or the annual revenue. The research and advisory company classifies businesses with less than 100 employees or with less than $50 million in annual revenue as 'small'. Midsize businesses, according to the company, are those with either 100-999 employees or annual revenue of over $50 million but less than $1 billion.
It appears there is no official definition of SMBs. For example, the U.S. Small Business Administration defines small businesses differently. Page 1 of the government agency's February 2015 report on small business profiles shows that the U.S. SBA defines small businesses as firms with less than 500 employees.
Analyst firm SMB Research has a different definition of SMB as well. It defines SMB as a small-medium business, which is a firm with 100-999 employees.
Since you are interested in SMBs and not just small businesses and you mentioned Gartner in the details of your request, I decided to use Gartner's definition of SMB in computing the number of firms below.
NUMBER OF SMBs
Gartner used the following bands in its definition of SMBs: <100 employees and 100-999 employees. I therefore looked for a Census Bureau table that shows the latest number of firms with these employment sizes. On the page containing the '2014 SUSB Annual Data Tables by Establishment Industry,' I found the relevant table to be the one with the following description:
"U.S. and states, NAICS sectors, large employment sizes up to 5,000+"
Based on this table, which was released by the bureau last September 2016, there were 10,924,459 U.S. firms with less than 100 employees in 2014. In addition, there were 5,903,449 U.S. firms with 100-999 employees in the same year.
Therefore, in 2014, there were 16,827,908 small or midsize businesses (SMBs) in the United States.
AVERAGE SPEND ON DIGITAL ADVERTISING
The Local Commerce Monitor (LCM) report by local media and advertising expert BIA/Kelsey appears to be the most authoritative report on SMB advertising and marketing spending. Besides, it is the only resource I saw that provides figures specific to SMB digital advertising. The other surveys I saw discussed either 'digital marketing', 'Internet marketing, or 'online marketing' not digital advertising.
The LCM report is Bia/Kelsey's "proprietary annual survey of small and medium business marketers". Please note, however, that SMB in this survey is defined as a firm with 1-100 employees.
The full report is behind a paywall, but I was able to glean the following relevant information from the company's infographics.
The average annual advertising spend of Core SMBs, or SMBS that "spend less than $25,000 annually on advertising or promotion," has been decreasing over time as shown below.
Wave 16 (2012) - $2,948
Wave 17 (2013) - $2,565
Wave 18 (2014) - $2,506
Wave 19 (2015) - $2,471
Meanwhile, the average annual advertising spend of Plus Spender SMBs, or SMBs that "spend more than $25,000 annually on advertising and promotion," has remained relatively steady through the years as demonstrated by the figures below.
Wave 16 (2012) - $75,037
Wave 17 (2013) - $73,146
Wave 18 (2014) - $78,776
Wave 19 (2015) - $75,169
How much of the ad budget is allocated to digital is shown through the percentages below. Among SMBs with Do-It-With-Me (DIWM) or Do-It-For-Me (DIFM) digital advertising, the portion of the ad budget allocated to digital has increased from 32.2% in 2014 to 40.2% in 2016.
DIWM/DIFM Digital Advertising
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2014 - 32.2%
2015 - 38.6%
2016 - 40.2%
DIY Digital Advertising
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2014 - 36.7%
2015 - 35.8%
2016 - 38.3%
If we assume that, at present, 40% of an SMB's total advertisting budget is allocated to digital, then we will get an average annual spend of $988 and $30,068 on digital advertising for Core SMBs and Plus Spender SMBs, respectively.
AVERAGE SPEND ON CONVERSION RATE OPTIMIZATION
There is very limited information on this topic and, after an extensive search, I was not able to see any amount specific to SMBs. However, I learned the following information which you may find helpful.
1. According to a May 2015 Forbes article, "on average, companies are spending as much as $2,000 a month on CRO tools."
2. As pointed out by Neil Patel in his May 2016 blog post, EConsultancy and Trust Radius both conducted surveys on conversion rate optimization.
EConsultancy determined how many of the respondents to the Adobe Digital Marketing Optimization Surveys allocate a certain portion of their marketing budget to optimization activities. The figures below show how this has changed between 2012 and 2013. For example, in 2012, 48% of respondents said they allocate less than 5% of their marketing budget to optimization. In 2013, the percentage of respondents with this allocation increased to 53%.
Less than 5% of marketing budget: 48% --> 53%
6% to 10% of marketing budget: 22% --> 22%
11% to 15% of marketing budget: 14% --> 11%
16% to 25% of marketing budget: 9% --> 9%
26% to 50% of marketing budget: 4% --> 3%
51% or more of marketing budget: 3% --> 3%
" 58 percent of companies surveyed spend more than $10,000 on digital analytics tools per year with 27 percent spending between $50,000 and $500,000, and 6 percent over $500,000"
" 44 percent of the companies surveyed spend more than $10,000 annually for A/B Testing software with 19 percent spending more than $50,000"
3. ConversionXL's The 2016 State of Conversion Optimization Report states that the CRO budgets reported by its survey respondents range from $1,000 to $3 million. Also, 53% of respondents say that "CRO is not mentioned specifically in the budget."
4. BrightLocal found, through its surveys of SMBs, that, in 2013, the average amount an SMB allocates to marketing was $400 per month (or $4,800 per year). In 2014, 70% of SMBs spent less than $500 per month (or $6,000 per year) on marketing while 83% spent less than $1,000 per month (or $12,000 per year) on marketing. Please note, however, that most of the respondents in BrightLocal's surveys had less than 50 employees.
If we assume that the average marketing budget of an SMB is still $4,800 at present and that 5% of this marketing budget is allocated to optimization activities, then we will get an average annual spend of $240 on CRO.
CONCLUSION
In summary, I estimate that most SMBs spend an average of $988 and $240 per year on digital advertising and optimization, respectively. These two amounts total to $1,228. If we consider all 17 million SMBs, the amount will be $20.9 billion. Trend-wise, the percentage of advertising budget that SMBs allocate to digital advertising has been increasing over time.
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