With the ongoing destruction of traditional Yellow Pages advertising and newspapers’ death spiral, small businesses need new advertising channels. U.S. businesses with less than $1 million business receipts had in 2005 total business receipts of about $2 trillion and total advertising expenditure of about $27 billion. Meeting the advertising needs of small businesses is a big deal.
The transactional problems of small-business advertising are quite difficult. Businesses with less than $1 million in business receipts have a yearly payroll that on average is roughly equivalent to one employee working for two months out of the year. Their average advertising expenses across the 28.5 million businesses of this size is about $1,000 per year. Even for a business with $1 million in business receipts, advertising expenditure is likely to be only about $12,000 per year. Historically, small businesses have purchased simple, standard-sized, standard-format, usually black-and-white print advertisements in local print media, year after year in the same way. Like traditional print advertising, online advertising for small businesses needs to be simple, low-cost, and not time consuming for the persons placing the advertisements. Advertising services for small business must be economically viable at low-value, high-volume transactions.
Small business are important sources of business opportunities, employment, and innovation. Developing online, small-business advertising services is a large-dollar opportunity. It’s also vital for the overall health of the economy.
The U.S. Internal Revenue Service (IRS) makes publicly available a large amount of data aggregated from tax returns. Three cheers for the IRS! Corporations and nonfarm sole proprietorships itemize advertising expenses on tax returns. Partnerships do not. Nonetheless, the IRS makes publicly available sufficient data to estimate reasonably total advertising expenses for all businesses (corporations, nonfarm sole proprietorships, and partnerships). Here’s a spreadsheet containing small-business advertising expenses from IRS tax returns. Data points:
- Corporations with less than $1 million in business receipts and all nonfarm sole proprietorships have similar advertising expenses to business receipts percentages by industrial sector and similar distributions of business receipts across industrial sectors.
- Sectors with relatively high small business advertising expenses relative to business receipts are educational services, information, and real estate, rental, and leasing.
- Advertising as a percent of business receipts generally decreases with increasing corporate size.
- Small-business partnerships account for only 6% of partnership business receipts, based on 2003 data.
- Among small business (meaning here businesses with less than $1 million in business receipts), corporations, sole proprietorships, and partnerships account for about 48%, 42%, and 9% of the total $26.9 billion estimated small-business advertising expenses.
I’d write more, but I’ve got to get my tax return done.