‘SMEs’ under investment in advertising is hurting growth’

The return on advertising investment made by small and medium sized businesses is eight times that of large companies, according to a report by the Advertising Association. 

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Advertising Association report attempts to quantify bottom line impact of advertising for SMEs.

The report found every £1 spent on advertising has eight times the relative impact on sales growth than the equivalent spent by the UK’s biggest brands.

The AA is using the report to encourage SMEs to advertise after finding that small and medium sized companies are under spending relative to their turnover.

Despite the fact that SMEs account for 50 per cent of jobs and 40 per cent of revenue generated, they only make up 18 per cent of the total spent on advertising by UK companies.

Only 30 per cent of all SMEs advertise, the report adds. For medium-sized businesses with a turnover of more than £10m, the figure climbs but to less that half of those companies (46 per cent).

Legacy perceptions that advertising is expensive and wasteful were offered as a reason for the under investment. This despite 64 per cent of those polled stating ‘advertising has been a success’ and the same number reporting it provided value for money.

The AA argues that an increase in advertising by SMEs would boost jobs and growth as well creating demand for products.

Tim Lefroy, CEO of AA, says: “Advertising pays, no matter the size of the business. There are sharp lessons here for entrepreneurs, policymakers and crucially for advertising itself.”

This is the third stage in AA’s long-term objective to demonstrate the value of advertising. In January 2013, it published ‘Advertising Pays’, an attempt to quantify the effects of advertising on the economy and claimed for every £1 spent on advertising £6 is returned to GDP. It followed this with a November campaign making the case for advertising’s cultural and economic impact.

The latest report was carried out by Deloitte for the AA. Return on advertising investment was based on a econometric model that used data from several sources. An online survey and a series of interviews  to canvas attitudes on advertising took place in October and November.

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