What does the UK digital service tax mean for advertisers?
One piece of legislation that may have slipped under the radar this year was the newly enforced Digital Services Tax. As of April 1, the following UK business service providers will be subject to a 2% tax:
- Search engines
- Social media services
- Online marketplaces.
Any money made from UK users via these mediums will be subject to the tax. As you can imagine, this tax is unlikely to affect small businesses – for example, digital marketing agencies in Chorley won’t be affected.
Or will they?
Those most affected will of course be advertising giants such as Google, YouTube, Facebook and Amazon. With experts projecting an additional £120 million in annual marketing costs, these giants are taking a stand.
Tech behemoths to pass costs on to advertisers
And hence, the small marketing agencies in Chorley do bear the brunt after all. Google has announced that it is passing this 2% tax on to its advertising customers, for example, those who use pay-per-click text or display ads.
The search engine is not alone. Having purchased YouTube in 2006, Google is also passing this cost on to YouTube advertisers. As the world’s second biggest search engine, there’s no shortage of advertising space on its video content.
Google’s changes, which also affect the Google Play Store, will roll out from November 1, 2020. Amazon implemented the fees on September 1.
I advertise my small business online – what should I do?
If you’re used to marketing your business with Google Ads, you’ll know that costs-per-click can fluctuate on a daily basis, with the standard 10% adjustment rule for your top bids.
Just look at this data from a Google Keyword Planner historical analysis of businesses in Lancashire.
|Keyword||Monthly Search Volume||Minimum Top of Page Bid CPC||Maximum Top of Page Bid CPC||Difference (£)||Difference (percentage)|
As we can see here, terms can vary tremendously, which is why many advertisers choose a bid somewhere in the middle. In theory, on a small scale, a 2% increase would not amount to much:
|Keyword||CPC||CPC with Tax||Difference (£)|
On a larger scale, that soon adds up – 10,000 searches for ‘hotels Preston’ would add another £200.00 to your monthly bill.
If you can’t afford to foot the bill (and why should you), consider these tips:
- Avoid wasted clicks with weekly negative keyword reviews
- Reduce bidding times to when your searchers are online e.g. accountants – 9am-5pm
- Review performance of aggressive bidding strategies like enhanced CPC.
What if I use an online marketplace?
At this point, we’d suggest reviewing campaigns at a micro level, e.g. product, rather than macro, e.g. whole product ranges. Review your current sales performance for each of your products – is one costing you more to advertise than it’s earning in revenue?
If you can trim wasted ad spend that costs 2% or more of your online marketplace budget, you can focus on investing in only the best-selling products.
Ready for some good news?
On a lighter note, at the time of writing, Facebook has said that it will not pass these costs on to advertisers. This means that those using Instagram or Facebook ads will enjoy the same costs. Note that Facebook also owns Whatsapp, if you want to get creative with your advertising…
In the short term, there’s no way of telling how Lancashire’s small businesses will be affected by these costs. What we need now is to be shrewder with our investment, and consider re-distributing funds to platforms like Facebook if budgets are short.
Looking for help with digital advertising campaigns? Get in touch.
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