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Brand loyalty is one thing, but when that loyalty is directed at a small business, it stands to benefit an entire community.
The relationship between a small business and its customers is unique — rarely is it purely transactional. In fact, 37% of Americans say they purchase from small businesses to receive a more personal experience. Also, 30% of them are willing to pay more and 30% are willing to wait longer at small businesses versus major retailers or chain stores, according to a new NerdWallet survey of over 3,000 U.S. adults conducted online by The Harris Poll from Oct. 3-5, 2022.
So when small businesses feel economic strain, it’s often experienced in tandem with their customers. Prices and offerings may change, staff may come and go — and some customers may visit less often as a result.
In this recent survey of small-business owners and consumers, we get a look at how these proprietors are managing the effects of the current economy, and we use their patrons’ insights to provide timely advice.
“Small businesses can get hit particularly hard when the economy is in turmoil,” says NerdWallet small-business specialist Kelsey Sheehy. “Rising costs mean consumers have less to spend, with many putting off purchases big and small. At the same time, everything is more expensive for business owners, too. Small-business owners will need to get creative, once again, to weather the ongoing economic uncertainty.”
Small businesses are facing economic challenges. More than half (55%) of small-business owners say one of the biggest challenges their business is facing right now is finding and/or retaining customers, according to the survey of 906 small-business owners. But the economy is rearing its head too — 37% of small-business owners cite inflation and 30% cite finding inventory or supplies among the biggest challenges their business is facing right now.
Customers are witnessing these challenges. Four in 10 Americans (40%) say they’ve noticed small businesses going out of business within their local community within the last 12 months, according to the survey. Four in 10 (40%) said they’ve noticed higher prices and 38% have noticed staffing shortages at the small businesses they support during this period.
Small businesses are finding ways to cope. The most commonly cited actions small businesses have taken in the last 12 months to cope with recent economic conditions are increasing their social media presence (33%) and increasing prices for goods and services (33%). Nearly as many (31%) say they’ve adjusted operating hours during this period in an effort to cope with recent economic conditions.
Americans support small businesses. More than 9 in 10 Americans (92%) say they support (spend money at) small businesses. Three in 10 Americans (30%) say they’re willing to pay more for products and services purchased at small businesses versus at a major retailer or chain store, according to the survey.
Small businesses in the current economy
Inflation is high, supply chains congested and interest rates elevated — it’s a tough time to be a small-business owner, and many of these constraints are unlikely to ease completely anytime soon. While 55% of small-business owners say finding and/or retaining customers — a perpetual obstacle — is among the biggest challenges their business is facing, other challenges they cite point directly to the economy.
Well over one-third of small-business owners (37%) say rising prices on their inventory and supplies (i.e., inflation), is among the biggest challenges their business is facing now. These proprietors thrive on their relationships with customers, so it’s unsurprising they’re not only concerned about their own bottom lines, but their patrons’ as well. In fact, 27% of small-business owners say passing higher prices on to their customers is among the biggest challenges their business faces right now.
Supply chain disruptions
Three in 10 small-business owners (30%) cite finding inventory or supplies (i.e., the supply chain) as one of the biggest challenges their business is facing right now, according to the survey. And 1 in 4 small-business owners (25%) say receiving those supplies and inventory in a timely manner is among their top challenges. These aren’t new developments — supply chain constraints have been ongoing for the past few years, beginning with shutdowns early in the pandemic and continuing today due to ongoing global turmoil.
The labor market has begun to cool, albeit slightly, after a period where job listings far outnumbered workers who were willing and able to fill those roles. Still, nearly one-fourth (23%) of small-business owners say finding and retaining workers is among their biggest challenges now.
In an effort to get inflation down, rates are rising, making it more costly for small businesses to raise capital. Roughly 1 in 4 small-business owners (24%) say finding business loans or other sources to grow or cover existing costs is among their biggest challenges right now. And 82% say access to such funds (e.g., loans, grants, etc.) is important to their success; 59% say it’s absolutely essential or very important.
“The stress of inflation piled atop supply chain challenges and staffing issues is significantly impacting small businesses," Sheehy says. “Owners need a lifeline, but help has been unattainable for many — many are having a harder time securing business loans, and those that are approved face higher borrowing costs.”
Customers have begun to notice the impact of these concerns:
40% of Americans say they’ve noticed small businesses going out of business in their local community within the last 12 months.
40% of Americans have noticed higher prices at small businesses they support in the past 12 months.
38% of Americans say they’ve noticed staffing shortages at small businesses they support in the past 12 months.
The costs of doing business: How small businesses are coping
These financial stressors have real effects on everyday business, and small-business owners are taking action. Indeed, many are acknowledging what their customers have already noticed: 33% of current small-business owners say they’ve increased prices for goods and services to cope with economic conditions in the past 12 months.
Notably, one-third (33%) of small-business owners say they've increased their social media presence in the past 12 months to cope with recent economic conditions. As with early on in the pandemic, this could represent entrepreneurs leaning into online business as a way to diversify their customer base.
“Social media is a great tool for small businesses to reach new customers and stay top-of-mind with existing ones,” Sheehy says. “Sharing new products or specials reminds people to shop with you. It gets them excited. Snapping and sharing pictures of customers — or reposting when a customer tags you and your work on social media — is a simple but effective tool to foster the sort of personal connection that draws people to small businesses in the first place.”
What’s important to small-business customers
Despite all of this, small-business owners have reasons to be optimistic: 92% of Americans say they support (i.e., spend money at) small businesses. This rate of support is particularly pronounced among millennials (ages 26-41) — 96% of that generation support small businesses compared with 92% of Gen Z (ages 18-25), 92% of Gen X (ages 42-57) and 89% of baby boomers (ages 58-76).
About one half (52%) of Americans say they purchase from small businesses to support local communities, an encouraging sentiment that suggests they know the potential impact of these dollars reaches far beyond the business owner they’re spending with directly.
Many small-business supporters are even willing to sacrifice more time and money to support these institutions: 30% of Americans are willing to wait longer for service at small businesses versus major retailers or chain stores, and 30% are willing to pay more for purchases at small businesses versus major retailers and chain stores.
This sentiment is especially concentrated in millennials, of whom 37% are willing to pay more for products/services purchased at small businesses versus major retailers. Among other generations, 33% of Gen Z, 27% of Gen X and 24% of baby boomers are willing to do the same.
These findings could suggest some consumers believe the good that comes from supporting small businesses is worth the added potential costs.
Lessons for small-business owners, from their customers
The old-school approach is still good. When asked how they find small businesses they support, Americans point to many traditional means: 56% by word-of-mouth, 41% by local advertising and 40% by driving or walking by the business. Though 42% say social media is how they find the small businesses they support, these tried-and-true methods are alive and well.
To see additional ways people find small businesses, according to the survey, click here.
Most small businesses would likely benefit from a strong social media strategy, but these efforts should come in addition to traditional advertising and marketing methods.
Cultivate that personal touch. Connecting with customers is doubly important for small-business owners — 37% of Americans say they purchase from small businesses to receive a more personal experience. In other words, it’s not only about the goods or services you’re transacting on.
Let your patrons know they’re valued. Consider small customer appreciation events, remember their name and slow down enough for some small talk. This relationship-building encourages loyalty that remains even if inventory is low or prices have to rise.
Be part of (not just in) the community. If shoppers choose small businesses to support the local community, and if small-business shoppers say they find these businesses by word-of-mouth, it makes sense that owners be active participants (not just physically based) in these communities.
Getting visible in your community doesn’t have to mean purchasing billboard space; it could be sponsoring a local 5K race or having a booth at a local fair.
Get vocal about holiday shopping sales. While 35% of Americans make an intentional effort to shop at small businesses year-round, just 19% make an intentional effort to shop at them on Small Business Saturday. If special holiday shopping sales (e.g., Black Friday, Small Business Saturday, etc.) are important to the success of your business, like 73% of small-business owners say they are, make sure you’re conveying that to your customer base.
Consider making the shopping holidays events instead of just sales — everyone likes free snacks and giveaways. And get the word out when you plan to have a sale. Whether through local radio or increased social media ad spend, make sure your customers know you have something planned.
Be transparent; communicate challenges. Your customers likely value your business differently than they do others. As the survey found, many Americans will wait longer and pay more at a small business than a larger store. They value the community impact and the personal touch.
If economic conditions — whether pricing, supply chain or interest rates — begin to affect your bottom line, it’s OK to share that information. For example, a price increase is likely to be better received when it’s communicated in advance as a difficult decision instead of communicated when their total is rung up or invoice issued.
“Lean into the things that draw customers to small businesses in the first place: the personal experience and sense of community,” Sheehy says. “Don’t be afraid to peel the curtain back a bit and explain the ‘why’ behind changes to pricing, hours and inventory. Give your customers a chance to rally behind you.”