Xero maps NBN to profit

Published on the 24/10/2018 | Written by Heather Wright

Mobile apps money makers SMB_xero

Faster internet is delivering gains for SMBs…

The digital connectivity offered by NBN is providing Aussie SMBs with a solid business boost according to a recent report, with Xero customers harnessing cloud-based apps reaping even bigger returns.

The report, from Xero Small Business Insights and economics consultancy AlphaBeta, confirms that digital connectivity is moving from a nice to have, to a need to have for Australia’s 2.23 million SMBs.

Based on anonymised data from tens of thousands of Xero small business customers, the report shows that in 2017 those in mature NBN regions (where NBN has been available ‘for an extended time or is available to a high percentage of premises’) increased their revenue by 8.6 percent, or almost two-thirds more, than those in non-NBN regions (areas where NBN hadn’t rolled out in 2016), which grew revenue by 5.4 percent.

“Those that are leveraging digital the most are seeing significant benefits.”

NBN is available to half of Australia now, but has been plagued with issues. According to Australian Bureau of Statistics latest figures less than 30 percent of SMBs had a high-speed broadband connection in 2015-2016,. The new report, however, offers up some positive news for the project – and for SMBs, with those in NBN regions growing employment by 10.3 percent, versus 7.7 percent for non-NBN peers.

An AlphaBeta spokesperson says the study used regression to control for variables that would affect how economically active an area is, to ensure the results are not merely indicative of an area being economically more robust – with or without connectivity.

When it came to app use, businesses with revenue under $100,000 who used at least one app saw their annual revenue grow 9.0 percent, versus 6.5 percent for those not using apps, while in the $100,000 to $499,999 bracket those using apps grew revenue by 6.9 percent versus 3.7 percent.

Across all Xero businesses surveyed, those using connected apps grew revenue by 5.5 percent versus 3.6 percent for non-app-using businesses on Xero.

Trent Innes, Xero Australia managing director, says while many people have been fearful that the digital revolution will result in a loss of jobs, the data suggests the opposite is actually true.

“It’s enabling small business growth and those that are leveraging digital the most are seeing significant benefits,” Innes says.

That’s hardly surprising, Xero noting the typical business with staff needs to conduct 50 to 70 activities to serve customers and manage the business, from accounting, invoicing and HR/payroll to marketing, customer and after sales services, and strategic management.

Andrew Charlton, AlphaBeta director, says the results show that businesses generating jobs are turning to apps to help manage their growth.

Businesses in the sample which used at least one app in 2017-2018, on average increased employment in the previous year by 2.2 percentage points, or at least 40 percent, more than similar businesses not using apps.

Interestingly, the report shows that app usage isn’t limited to back office functions, with half of all app usage being for core functions and half for supporting functions. Clerical work such as processing expenses topped the bill, followed by business intelligence, job scheduling and invoicing, selling/POS/payments, CRM and managing accounts and staff rostering/time tracking.

“Increased access to infrastructure, lower prices, greater choice and innovation and specialisation in the app market are helping small businesses access technologies and functionality previously beyond their reach,” Charlton says.

The traditional digital divide between regional and metropolitan business wasn’t in play with businesses in both regional and metro areas using apps at a similar rate, at 31 percent and 34 percent respectively.

“This could be due to a number of factors such as improved digital connectivity and bandwidth – both mobile and fixed – in regional Australia, the location-agnostic nature of cloud-based solutions and that the presence of local advisors in regional areas is encouraging the uptake of digital tools,” Charlton says.

The accounting vendor notes that even among its own customers, many have yet to connect apps to Xero, with a lack of awareness, lack of time to investigate options and fear of change among the barriers.

The Xero results echo those seen earlier this year in ANZ’s The Digital Economy: Transforming Australian Businesses report, which found digitally enabled businesses save an average of 10 hours a week and subsequently increase annual revenue by almost a third.

“Collectively, the [micro, small and medium business] sector has the potential to boost revenue by a total of $385 billion per year and save 22 million hours of effort per week,” ANZ Small Business Banking general manager Guy Mendelson says.

Digitally advanced businesses – which account for 34 percent of the SMEs – saw an average revenue per employee of $276,000, or 1.7 times higher than digitally tentative businesses.

Despite the big potential benefits, that report also noted that the majority of Australia’s small businesses are ‘dismissive’ or tentative about using digital technologies to assist their business, with 56 percent not valuing digital tools.

The ANZ report noted that the top five digital applications for SMEs were internet banking (86 percent), email (81 percent), accounting software (47 percent), payments services (36 percent) and invoice generation tools (35 percent).

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