Xero, the global small business platform, today announced the findings of a new report, which reveals that higher technology spend was linked to greater resilience throughout the pandemic for small businesses. The Xero Small Business Insights report, ‘Picking up the pace: trends in small business technology adoption and use’ shares new evidence that more digitalised Australian small businesses have better productivity, sales, jobs and payment outcomes.
Joseph Lyons Managing Director, Australia and Asia
The pandemic has spurred one of the biggest shifts in recent history when it comes to small business digitalisation.
The report, produced in partnership with Accenture, draws from the anonymised and aggregated data of hundreds of thousands of Xero subscribers to create new insights on the trends and benefits of small business digitalisation (tracked using ICT spend and app use) across Australia, New Zealand and the UK.
“The pandemic has spurred one of the biggest shifts in recent history when it comes to small business digitalisation. With Xero’s latest report, we have insight into the scope of this change for Australian small businesses – and a clearer idea of what may help on the path to recovery,” said Joseph Lyons, Managing Director Australia and Asia, Xero.
Pandemic ramps up small business’s digitalisation
Prior to the pandemic, Australian spending on digital services, like software, was already increasing, rising 70 per cent between 2009 to 2019. The pandemic drove this to new levels, with ICT expenditure up 13 per cent in Australia between March 2020 and June 2021.
Other markets, however, saw a more significant jump; 25 per cent in New Zealand, and 20 per cent in the UK. Similarly, there was variance among countries’ spend on technology. Australian small businesses spent 2.4 per cent of their total expenses on ICT, on average, in the first half of 2021. This was half the rate of peers in the UK (4.4%) and just below those in New Zealand (2.9%). Overall, Australian small businesses are less digitalised than their peers in the UK, in terms of ICT expenditure and app usage intensity.
Technology use linked to greater resilience during the pandemic
The report found a clear link between small business digitalisation and improved performance throughout the pandemic. Australian small businesses in the top quartile (25%) of ICT spend saw AU$34,800 more in sales throughout 2020 than those who spent the least.
Key findings include:
- The top 25 percent of firms saw a sales uplift (relative to 2019) of AU$28,800 in Australia. The bottom 25 percent of firms saw a sales fall of AU$6,000 over the same period.
- Jobs results were slightly higher for the heaviest ICT spenders compared to the lowest quartile (0.1-0.2 employees on average).
- The top quartile of ICT spenders was paid 1.9 days faster in Australia than the bottom 25 percent.
When looking at app usage, Australian small businesses that use apps more frequently had more resilient sales and jobs growth.
- The top quartile of app users saw sales growth of 2.2 percent year-on-year (y/y) in 2020 compared to a decline of 2.2 percent y/y for non-app users.
- The top 25 percent of app users saw job growth of 1 percent y/y in 2020 compared to 0.7 percent y/y for non-app users.
Greater app usage was also linked to increased productivity* across all countries. The top 25 percent of app users were more productive than those who didn’t use any apps in 2019.
“Increased small business technology adoption is clearly a positive for the individual small business. In addition, the impact on productivity growth means it is also a positive for the national economy as we rebuild in 2022,” said Louise Southall, Xero Economist.
Adoption among small businesses still varies
Despite this boost in digitalisation, however, some small businesses have been slow to embrace technology in their business operations. Certain industries and business types are significantly more digitalised, according to ICT spending. Professional services spend almost five times as much (4.9%) on technology as those in hospitality (1.1%). This was followed by other services (2.4%), real estate (2%), retail (1.9%), construction (1.7%), and manufacturing (1.6%).
Meanwhile, sole traders spent a higher proportion of expenses on ICT (5.1%) when compared to larger businesses, almost four times greater than businesses with more than five employees (1.2%). Small businesses with one to five employees spent 2 percent of total expenditure on ICT each month.
While many Australian small businesses are adopting technology at a greater rate, there’s an opportunity for more to see these benefits.
“From these findings, it’s clear how powerful technology can be for small businesses. Tremendous change can happen when a business adopts new tools and systems and uses them to a high degree, as seen with app usage. By overcoming the barriers to adoption, there are huge possibilities – ones that can influence not only the flow of operations but greater resilience. With an economic recovery underway, it’s important small businesses are set up for success, and digitalisation plays a key part,” added Lyons.
To download the Small Business Insights report full report