How Much SMBs Are Spending on Services To Close Their Skill Gaps

Small-business leaders know that hiring service providers is part of their job, and an important step to remain competitive in today's marketplace. But it can be hard to figure out how much you should invest in services, what type, and which providers to choose.

That's why we surveyed over 1,000 small and midsize businesses (SMBs) who have recently purchased or commissioned a service provider.* Our survey revealed the average amount small businesses are spending on service contracts, the types of services they are investing in most, and what strategies they're using to budget for these investments.

These trends can help guide your SMB's spend when it comes to services, determine how much to budget for each area, and related actions you can take to drive growth and opportunity for your business.

SMBs turn to service providers for expertise and bandwidth

According to our survey, 44% of U.S. SMBs are turning to service providers when they lack sufficient bandwidth, even if they have team members with the necessary expertise. Of these businesses, 31% say they had the bandwidth but lack the expertise, while 11% had neither the bandwidth nor the expertise.

For example, let's say a small ecommerce business lacks the bandwidth to handle an influx of customer service requests during peak sales periods but also lacks the expertise to implement a chatbot or other automated system to handle those requests. This business can turn to a customer service provider to handle its influx of requests while also consulting with a software development firm to implement a chatbot.

If you're considering partnering with a service provider, it's important to weigh both the benefits and drawbacks. While outsourcing certain tasks can free up time and resources, it does come at a financial cost. 

Look for providers with a track record of success in either your industry or the area where you need assistance, and check references to ensure they have both the expertise and bandwidth to handle your specific needs. 

Remember that you can partner with multiple providers to address different gaps across your business, rather than relying on a single provider for all your needs.

SMBs seek to maximize ROI on service purchases

Our survey found that, on average, SMBs spent $73,821 on their most recent service purchase for a single project. Businesses are spending the most on marketing services, with an average spend of $78,701. On the other hand, data intelligence has the lowest average spend at $71,301.

The high cost of hiring service providers can be a major barrier if you're looking to grow your business, but it's important to consider the value proposition of service providers before making a decision. 

By outsourcing tasks for which you lack the expertise or time, you allow team members to focus on success in other parts of your business while benefiting from the expertise and specialized knowledge offered by a service provider.

One way to manage service provider costs is to clearly define the scope of work and expectations up front, to avoid scope creep and unexpected costs. Additionally, you should negotiate pricing and payment terms with service providers on your shortlist to ensure you're getting the best value for your money.

You can also maximize the ROI on service purchases by choosing providers that specialize in your specific industry or niche.

SMBs are spending more and hiring more service providers

According to our survey, 94% of SMBs have signed up for more than one service contract in the past 18 months, with an average spend of $113,881 during that time (as of our survey date, see more here).

These findings underscore the importance of establishing a network of reliable and trustworthy service providers. With so many service contracts to manage, it's important to work with providers who can deliver quality work and maintain consistent communication throughout the duration of the contract. 

Ensure that your contracts are clearly defined, with specific deliverables and timelines to avoid any misunderstanding or strife. To make the most of your service contracts, regularly evaluate your providers and the value they bring to your business. 

If a service provider consistently delivers quality work and meets or exceeds expectations, consider extending the contract or expanding the scope of work. On the other hand, if a service provider is consistently falling short, you may want to terminate the contract and seek alternative providers.

Tech services are costlier than other services for SMBs

Our survey found that SMBs who hire agencies to provide tech services such as software development, web development, and cloud services spend more, on average, than those who invest in non-tech services. 

Tech service purchasers spent an average of $119,749 on services in the past 18 months (which is higher than the overall average spend).

Carefully consider your budget and priorities when evaluating tech services, and thoroughly evaluate the qualifications of service providers on your list. 

Since this type of expert assistance can come at a premium, it can be worthwhile to shop around and compare tech service costs from multiple providers to ensure you're getting a fair price.

SMBs are achieving their service provider goals with smart budgeting

According to our survey, a majority of SMBs (81%) were able to accurately budget for their service provider needs and did not exceed or fall short of their projected budget.

Decision-makers at SMBs must take the time to carefully evaluate and detail the services their business needs in order to accurately assess how much you can afford to spend on them. This can prevent overspending, under-budgeting, and maximize the value you receive from service providers.

In practice, this can involve working closely with relevant team members and outside consultants to determine necessary services and associated costs, as well as develop contingency plans in case of unexpected changes. Ultimately, effective budgeting will help SMBs make the most of their investments and achieve their business goals.

Use these trends to explore service providers with confidence

No matter your industry or niche, there are likely areas where your business could benefit from service providers. Understanding these trends, how other SMBs are budgeting for success, and what you can expect to spend can help you achieve both your business objectives and increase the ROI of any service contracts.