Small online businesses in the UK that invest more in Pay Per Click than other marketing methods are reporting dwindling profits, according to insights from the UK’s leading payment processor, Sage Pay. The third annual Sage Pay e-business Benchmark Report of 1500 online businesses in the UK shows that driving traffic through PPC, whilst remaining top choice for businesses, drives less business transactions than when compared to those that invest more in social media and optimising sites to convert sales.

PPC claimed the majority of the marketing budgets in 2012, however the most successful businesses were found to spend less on PPC (27% of budget) – while their less successful competitors spent 10% more (35% budget spend).

By contrast, investing in engaging customers through social platforms proved to yield better results – companies posting higher profits spent 25% of their budget on social media compared to 19% for those whose profits lagged in the last year.  Additionally a huge 73% have optimised their site for m-commerce, with increasing investments made in on-going optimisation and app development.

Simon Black, CEO of Sage Pay, said: “It is a highly competitive market and the disappointing January sales figures show just how important it is to convert at the final hurdle. Our research shows that more profitable businesses are finding alternatives to drive traffic to their sites, through social media, and mobile optimisation.   With 28% of small businesses losing most transactions at the final payment stage, investing in new channels that engage at all points of the customer journey is essential.  Those that do not look to new channels and methods to engage their audience, will really suffer this year.”

Online businesses that work hard both to get customers to their sites and convert them are the most successful.  31% of businesses see offers as the biggest driver for sales conversions, with a range of payment choices coming second (18%), and fast delivery times and minimal checkout pages following suit at 14% and 12% respectively.

In terms of overall marketing spend, the research reveals that small e-businesses spend between 1% and 10% of their total revenue on marketing, with 59% of high-performers in this range. Interestingly, only 20% of companies with equivalent success spend higher than this figure (between 10-20%), which shows that spend and success in marketing are not necessarily linked.

Black said: “Getting the basics right, coupled with the best placement of investment and effort, is key to business vitality. The amount companies spend on marketing is not the issue – what matters is looking at new ways to reach customers and making sure their journey through the site to sale is well thought through and compelling to reduce friction and boost conversions.”

*Sage Pay has defined a small e-business as one conducting fewer than 5,000 transactions per quarter and a large e-business as transacting over 5,000 transactions per quarter.

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