Small Businesses Now Slashing Advertising Budgets

In this age of Internet accessibility and social media, it's becoming easier than ever to reach an audience, particularly for small businesses which may not have the cash on hand to undertake heavy advertising campaigns. That new reality, in turn, has led to many independent companies eschewing traditional advertising more or less altogether these days.

When it comes to buying ads that appear in small newspapers, on the radio, or even on local television, many small business owners are now simply saying, "No thanks," according to a new report from Ad Age. The proliferation of online marketing that comes at little or no cost to smaller companies – which don't have deep pockets for almost anything, let alone advertising – is often preferable, and this is for a number of reasons.

"Small businesses have always underspent [on advertising] because they didn't have a lot of resources," Andrew Whitman, managing partner of 2x Consumer Growth Partners, an investment firm that provides growth capital for small consumer-packaged-goods companies, told the publication. "[However,] the new-media world has in many ways leveled the playing field. Now not spending a lot of money can get them something. Not only is it cheaper, it's often more measurable."

The amount of money spent on what is known as "local advertising" totaled just $93 billion nationwide, up just 7 percent from the all-time low observed in 2010, when the effects of the recession were still very real for many small businesses across the country, the report said. At the same time, though, spending on "local promotion" has surged to $169 billion, an increase of 47 percent in the same time period.

Promotion may include participation in services such as Groupon, which may allow companies to reach a large number of users in their local areas without a massive cost, the report said. The good news when it comes to participating in these programs is that if the deals are good enough, and attracts interest, it more or less means guaranteed customers for a short period of time, and some may even be enticed to continue visiting the company even after that promotion comes to an end. And when it comes to the price to participate, there's no up-front costs for small businesses.

Social media proving a popular spending ground
However, it should be noted that many small businesses are still spending some money on advertising, just not through traditional means, the report said. Smaller companies with advertising budgets of between $1,000 and $2,000 made up as much as half of the growth for Facebook's small business client base in the final six months of 2012, and that trend is expected to continue.

There may be some bad news on the horizon for these companies in the near future, though, the report said. With so many companies pouring into social media advertising, banner or text ads with search engine giants like Google, and so on, it might make sense for the companies facilitating those purchases to start raising prices, simply because they can. What once may have been a free service, for instance, might begin to cost money, and those that carried nominal fees in the past may soon become more expensive.

Taking all these facts into account in the future will certainly affect any independent company's bottom line, and added costs are important to consider when also exploring expanding payroll. For instance, it's important to remember that such a decision will necessarily increase small business insurance costs, including those for liability insurance policies. Therefore, finding the most affordable coverage possible that still meets all of a company's needs will be very important going forward.