Strategy & Advisory

Managing business during the pandemic: SMEs that use digital tools achieve higher revenues

Philip Farbmacher

Founder & CEO

Published

December 3rd, 2021

Updated

December 3rd, 2021

7 min

The use of digital tools increases revenue, strengthens customer loyalty and attracts new employees.

A comprehensive study by the Connected Commerce Council in collaboration with Google surveyed several thousand SMEs and their executives on how they are coping with the crisis and whether they are using digital tools to remain competitive. According to the study, the majority (80%) of the surveyed companies increased their use of digital tools during the pandemic. The digital tools that were part of the study are:

Business website
Social media (e.g. Facebook, Instagram, or LinkedIn)
Digital payments (e.g. through Stripe)
Collaboration tools (e.g. Trello or Asana)
Video conferencing (e.g. Zoom or Skype)
Third-party e-commerce platforms (e.g. Amazon)
Paid digital advertising (e.g. Google Ads)
Business listings (e.g. on Herold or FirmenABC)
Recruiting platforms (e.g. Karriere.at or hokify)
CRM platforms (e.g. Hubspot or Pipedrive)
Webshops or online shops on the company website
Data analysis tools (e.g. Google Analytics)
Customer insights tools (e.g. various)
Online training platforms (e.g. Skillshare or Udemy or company-owned)

Although the majority increased their use of digital tools, there are significant differences in terms of the degree of digitization. From these, the following three categories can be identified:

"Digitally Advanced" (42%): They use more than 10 digital tools and consider them essential. This leads to better financial results such as higher revenues and more hires.
"Digitally Developing" (40%): They consider digital tools as supportive for their business and use an average of six of them.
"Digitally Insecure" (18%): They use only a few digital tools and do not prioritize them.

The analyses and explanations below will often compare these three categories or groups to show how and why "Digitally Advanced" perform significantly better than "Digitally Developing" and especially "Digitally Insecure".

The smallest are the most affected by the pandemic

There is no doubt that the pandemic has had a significant impact on small and medium-sized enterprises (SMEs) across Europe. Compared to pre-pandemic levels, SMEs experienced an average decline in revenue of over 20% and a decrease in their customer base of more than 16% within a year. Larger SMEs fared better than the smallest ones. So-called "micro" SMEs with less than 10 employees experienced a revenue decline twice as strong as the largest SMEs with 100-250 employees.

A digital safety net as a lifeline and success factor during the pandemic

"The digital safety net describes the positive financial and operational impact of digital tools on SMEs." This is particularly true for adapting, surviving, and recovering from economic or societal shocks.

As a reminder, we categorise SMEs based on their use of digital tools as "Digitally Advanced", "Digitally Developing" and "Digitally Insecure". The graph below compares the financially and operationally successful advanced SMEs with the insecure ones in terms of revenue, customer retention and new hiring. The differences and advantages for the advanced SMEs are clear.

Although both had to face setbacks and negative impacts due to the pandemic, digitally advanced SMEs performed better compared to insecure SMEs. Digitally advanced SMEs achieved 1.6 times better revenue results than insecure SMEs. In addition, advanced SMEs were 1.4 times more successful in retaining customers and 1.4 times better at acquiring new customers. It is also noteworthy that advanced SMEs hired more than three times as many new employees (3.3) compared to insecure SMEs.

The study also shows that these differences occur in similar forms in various countries. In every country, advanced SMEs had significantly better revenue results than their counterparts. Generally, advanced SMEs perform better and insecure SMEs perform worse than the SME average in their respective countries.

The role of specific digital tools: e-commerce

SMEs that use more digital tools perform better operationally and financially. But which types of digital tools are the most important? Are some more important than others? Proprietary online shops (standalone or in conjunction with the company website) are an obvious way to increase sales digitally. Are they responsible for the difference between "digitally advanced" SMEs and "digitally insecure" SMEs? The study shows that SMEs that used e-commerce tools before the pandemic that enabled them to sell directly through their company website performed significantly better during the pandemic. SMEs that used e-commerce achieved 5% to 6% better sales than those that did not. SMEs that had a website with a webshop at the beginning of the pandemic had a clear competitive advantage over those that did not. We reported on the importance of online shops for SMEs in our blog articles "how to sell more through my online shop", "Part 2", and "Part 3", as well as "how does Covid-19 affect offline and online commerce".

However, e-commerce alone does not fully explain the differences between advanced and insecure SMEs. Other types of digital tools also contribute to the operational and financial success of SMEs.

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SMEs that used multiple digital tools before the pandemic achieved better results during the pandemic

E-commerce on SMEs' websites was an important competitive advantage during the pandemic - but not the only one. SME executives were asked to use 14 categories of digital tools in addition to e-commerce on their company website. The analysis showed that in addition to e-commerce on the company website, the use of other digital tools resulted in a 3-6% positive difference in revenue between advanced and insecure SMEs.

To recap, the following digital tools were examined in the study:

The company website
Social media (e.g. Facebook, Instagram, or LinkedIn)
Digital payments (e.g. via Stripe)
Collaboration tools (e.g. Trello or Asana)
Video conferencing (e.g. Zoom or Skype)
Third-party e-commerce platforms (e.g. Amazon)
Paid digital ads (e.g. Google Ads)
Business listings (e.g. on Herold or FirmenABC)
Recruiting platforms (e.g. Karriere.at or hokify)
CRM platforms (e.g. Hubspot or Pipedrive)
Webshops or online shops on the company's own website
Data analysis tools (e.g. Google Analytics)
Tools for customer insights (e.g. various)
Online training platforms (e.g. Skillshare or Udemy or company-owned)

The analyses show that SMEs that used some or all of these digital tools at the beginning of the pandemic had a competitive advantage and were ahead of their competitors. Others had to invest a lot of time at the beginning to research, train, and implement such tools. The graphics below clearly show this.

Advanced SMEs generally use more digital tools and achieve better results. Before the pandemic, advanced SMEs used about twice as many digital tools as insecure SMEs. The differences are sometimes considerable, ranging from 1.7 times (possession of a company website) to 4.7 times (use of online training platforms). Digital tools that brought the greatest benefits (orange boxes) were used 2.3-4.7 times more frequently by advanced SMEs than by insecure ones. This means that there is a clear digital divide and therefore a divide in terms of revenue and success between SMEs that use many digital tools and those that do not. You can also read about other impacts of Covid-19 on the relevance of web presence in one of our previous blog posts.

The COVID-19 pandemic has hit SMEs hard. But the use of digital tools has acted as a "safety net" and saved many of them from going out of business. The pandemic affected almost all SMEs, with 90% of those still in business experiencing significant disruptions and 44% even forced to change their products, services, or business model to survive.

Advanced SMEs reported 80% better sales and 60% more revenue than insecure SMEs during the pandemic. This shows that the right use of digital tools leads to better results. Digitally advanced SMEs were also more able to create jobs, hiring 3.3 times as many new employees as insecure SMEs.

The smallest SMEs with less than 10 employees and women-led SMEs are more disadvantaged if they are not driven by digital. However, they also see oversized benefits for their business if they are. One main reason why some SMEs have not accelerated digitization has nothing to do with knowledge, experience, or ability. Rather, they do not understand how tools work together within a digital strategy and are also confronted with fears and concerns about digitalisation. In addition, SMEs that are already digitally engaged also need access to capital, infrastructure, tools, and training to digitize their operations and implement digital tools. But, it is clear from the above that using digital tools brings definite advantages.

In 2020, digital transformation became a digital urgency for small and medium-sized enterprises (SMEs)

Everyone is living in the "new normal" - we will not return to a less digital world. In 2020, society experienced a decade of digital transformation. The urgency for everyone to innovate and transform is real and practically required for future success. SME leaders who have not yet begun to rethink everything they do must start now, including:

Hiring, training, and collaborating with employees
Finding, engaging, and understanding customers
Selling products and services and creating new ones
Analyzing business data and measuring results

As described in this report, a range of digital tools can help SMEs with all of the above and more. The business value of digital tools changes in different environments. In times of crisis, digital tools act as a digital safety net for SMEs. They can keep employees in touch, help find new customers, sell products in different ways, and so on. In normal business times, digital tools act as a "bridge" to fill gaps that SMEs may have. And in competitive situations, smart use of digital tools can multiply efforts and make an SME more agile, efficient, and better able to compete for talent, customers, and revenue.

The world's oldest restaurant, Botín, in Madrid, has shown how valuable the use of digital tools can be during a crisis. Owner Antonio González says:

"We may be the oldest restaurant in the world, but we see digital and forward-looking tools as essential to our success. We will undoubtedly continue to use the tools we introduced during the pandemic and continue to implement additional ones."

The key to our economic recovery: access to digital tools and "digital enablement" for SMEs

SME leaders should be empowered to access, understand and use digital tools to maximize the sustainability of their businesses and the overall economic impact of SMEs. We know that digital tools improve overall economic results as well as financial and operational results for SMEs. Both technology companies and decision-makers are therefore responsible for ensuring that SMEs have access to digital tools, understand their value for business strategy, and can easily train their employees to use them correctly. Decision-makers should act to maximize the resilience of the SME community throughout Austria. Measures may include training on digital tools and consultancy services for their use and implementation. Technology companies should help SME leaders understand the value of the different types of digital tools they offer and how these tools can fit into a coherent digital strategy for SMEs.

Digital skills are a central element of economic recovery in Austria. For this reason, at Momentum, we see ourselves as exactly this partner who helps SMEs build these digital skills, whether through consultancy, training, workshops, or the implementation of digital tools and projects. We aim to strengthen the "digital safety net" for as many SMEs as possible, so that economic recovery can be quick and sustainable, and our businesses, our SMEs, are better protected for future crises, as the next crisis is sure to come.