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New Research: SMB Software Purchase Decision Drivers

Drivers of Software Purchase Decisions for Small Business in 2021

In February 2021, Phase 5 partnered with B2SB (Business to Small Business) agency Cargo to conduct a study of over 2000 small & medium businesses (SMB) in North America. Our research explored drivers of SMB purchase and loyalty behavior, and investigated what they currently fear, forecast, want, and need from enterprise brands. This article is the second in a series that highlights the study’s key findings by industry vertical, and is focused on what enterprise providers of software solutions need to know.

While a digital transformation was already taking place across all types of businesses and industries, the pandemic accelerated this change as business owners were forced to adapt instantly to a socially distant, contactless-preferred world. As a result, the need for suitable technology and tools has never been more pressing than it is today. And while offering product quality, value, and a smooth experience continue to be table stakes for any brand, the following insights go beyond those basic requirements. Read on to learn about some potentially game-changing drivers of software purchase decisions for SMBs as we begin to move forward out of the pandemic.

Which Area of the Business is the Priority for Software Investment?

Our study shows that 44% of all SMBs surveyed have increased their software spending since the pandemic began. Given the circumstances, this number is not surprising. However budgets are obviously not limitless, and the questions are how are SMBs choosing where to direct this increased spending and which software to purchase? What tools do they believe will have the most impact on their business?

When asked what types of software they currently use, 65% answered both Financial Management (e.g. accounting tools) and Office Productivity (e.g. Microsoft Office, Google Docs/Sheets). Collaboration software (e.g. Zoom or Microsoft Teams) was listed 3rd overall (at 58%), but the number was 80% for businesses created within the last year (i.e., the “COVID Class”). Project Management software came next overall (44%), followed by CRM software (33%).

While businesses that are already using the above software may not seem like good prospects, nearly one third (31%) said that they’ll likely be switching providers within the next 12 months. For larger SMBs (50+ employees), as many as 66% will be considering a switch during that timeframe.

We also asked about the specific areas in which respondents were most likely to increase their spending next year. 36% overall said that they would be likely to spend more on Collaboration software in the next 12 months. The next highest responses were for CRM (34%), and Project Management (33%). On the flipside, 61% and 68% of respondents respectively said they expect to spend the same amount on Financial Management and Office Productivity software. So while these last 2 software types are most popular amongst SMBs, they are not necessarily the areas where near term incremental investment will happen.

What Do the End-Users Say?

Once an organization has decided to upgrade its software in a particular area, the next step is to weed through potential providers and options, which may seem overwhelming. So how do time-starved entrepreneurs and small business leaders evaluate these options, and to what or to whom do they turn for trusted advice?

For 60% of younger SMBs, advertising, online reviews, and tech forums are all considered helpful in the decision making process. However advertising specifically tends to have more impact on larger SMBs vs. those with less than 10 employees, as 66% vs. 36% agreed it was useful in decision-making. Across the board, online reviews ranked second as the most helpful influence for all SMBs.

While it is not surprising that the small business owner himself/herself wields influence over final purchase decisions 80% of the time, the influence of employees, and in particular end-users is nearly as strong. 69% of SBOs say that their internal end-users are influential or very influential, and that number rises to 72% for larger SMBs (50+ employees), and to 80% for the newest SMBs (the “COVID Class”).

As an enterprise marketer of software, perhaps the most important takeaway is to ensure these end-users (who may be junior employees and not present at the negotiating table) are not overlooked. Not only might they sway their own employer’s point of view, but through online reviews they may sway others as well.

How Much Does It Cost?

Despite the surprisingly high impact of the opinion of employees, cost still matters - and it matters a lot. 81% of SMBs across the board agreed that financial considerations were influential or very influential in final software purchase decisions. This number grows to 89% for larger SMBs (50+ employees). It also outranks factors such as brand trustworthiness, compatibility with business partners’ software, and product warranty.

That said, when it comes to evaluating their current providers, many SMBs see room for improvement when it comes to cost transparency, pricing models, and value in general. Close to 40% (37%) rated their current vendor as offering very poor, poor, or (at best) adequate cost transparency. Similarly, 38% said the supplier's pricing model’s ability to meet their needs was somewhere between very poor and adequate. Only 56% overall feel that they are getting good or very good value.

How is value defined and perceived by this segment? No matter what size business, the number one answer is product quality. This might include elements such as tech that meets their needs and is easy to use, accessible support, and innovation.

Summary

Many SMBs will be investing in software in the coming months, painting a picture of opportunity for enterprise software providers. While many already have established tech and tools in the areas of Financial Management and Office Productivity, up to two-thirds of them may be considering a switch. In addition, approximately one-third of all SMBs expect to increase their investment in the areas of Collaboration, CRM, or Project Management software. Of course the current situation of each particular business will determine where they place their limited tech dollars, however there are some notable distinctions between businesses by age, especially for the “COVID Class” of SMBs.

We also know that software purchasers are likely to do some research via online reviews and tech forums, as well as by engaging their end-users in the evaluation process before making any decisions. And not surprisingly, cost will impact that final selection. Enterprise marketers would be wise to consider messaging and channels to reach these important influencers, while remaining cost competitive. Cost models that offer transparency and flexibility may offer value in addition to price tag alone.

Research can help identify which specific businesses are in the market for a particular software category, as well as how to engage key influencers, and how to structure competitive cost models. Please contact us to learn more details about the above study (including specific results for Canada / the U.S.), or to schedule a discussion about your specific business challenges.

Written by Steve Hansen

Steve Hansen, MBA, is the President of Phase 5 US. With almost 2 decades of experience in client-side marketing strategy, market research, and product management, Steve brings a client’s mindset and drive for actionable results to each project. He has extensive experience in capturing the view “from the outside” with a special focus on product and service innovation. Steve is based in Minneapolis, Minnesota.