Running a small business often means getting hit with costs you can’t control.
Because of inflation, the same products, supplies, or services that cost you $100 last year might now cost $103, or even more.
For larger companies with significant purchasing power and healthy cash reserves, a seemingly small increase like that may be manageable.
But for an SMB, even the tiniest bump can make a noticeable dent in profitability—especially when multiplied across hundreds or thousands of units.
The good news? While you can’t necessarily control what your suppliers charge, you can control how you respond, and even mitigate the impact on your business.
In this article, we share smart small business cost management strategies for managing supplier price hikes in ways that best protect your margins.
Why Supplier Price Hikes Can Hit Small Businesses Hard
Inflation refers to the gradual increase of the overall cost of goods and services and how, over time, your money doesn’t stretch as far as it used to.
As inflation drives up costs across the economy, SMB owners are often faced with higher prices for the materials, products, and services they need to operate—many of which they rely on suppliers to provide:
- According to the Federal Reserve’s 2025 Small Business Credit Survey, 84% of small firms that sourced goods, services and resources internationally in 2025 said they cost more than in the previous year.
- The Institute for Supply Management also found that service businesses continue to face higher operating costs, with 61% paying higher prices in 2025, representing an average cost increase of 6.2%.
And supplier price hikes rarely happen in isolation. For example:
- A retailer may be dealing with higher wholesale prices at the same time as rising storage costs.
- As a restaurant pays more for ingredients and beverages, they may also be managing higher utility rates.
- A consulting firm could be facing a price hike in managed software services while also being required to increase employee wages.
The proverbial buck doesn’t necessarily stop at the supplier’s invoice price. The true cost you pay may include additional charges for things like rush jobs, payment processing fees, duties, and tariffs.
Let’s say a small construction company learns its supplier’s material price has increased by 5%. If freight charges have also risen due to higher fuel costs, the SMB could be facing a much larger increase in its overall costs.
Cumulatively, all these pressures can create a major margin squeeze in which it becomes more expensive to run your SMB—forcing you to either raise your own prices or absorb the increase yourself.
Herein lies the conundrum of supplier price hikes.
Boosting your prices in response could drive away customers or decrease demand. But shouldering the entire increase could leave your SMB with less profit in each sale.
So, what can be done?
Determining Whether to Absorb the Cost or Pass it On
There’s no one-size-fits-all approach to managing supplier price hikes.
That said, you do have a variety of choices, from absorbing the increase entirely to passing it on to your customers, sharing the cost, or finding savings elsewhere.
To determine which approach makes the most sense for your SMB, consider the following questions:
How much will the price hike affect your profitability?
Gross profit tells you how much is left from a sale after paying the direct cost of the product or service. Gross margin represents how much is left as a percentage of that sale.
A small increase on a high-margin product may be easier to absorb yourself. But the same increase on a low-margin product could make selling that item barely profitable.
To see why, let’s compare two products that both sell for $100 but have different supplier costs—and therefore different gross margins. The supplier has increased the cost of both items by $5.
Product A: Higher-margin product
Before the supplier increase:
- $100 selling price − $60 supplier cost = $40 gross profit
- $40 ÷ $100 = 40% gross margin
After the supplier increase:
- $100 selling price − $65 supplier cost = $35 gross profit
- $35 ÷ $100 = 35% gross margin
Product B: Lower-margin product
Before the supplier increase:
- $100 selling price − $90 supplier cost = $10 gross profit
- $10 ÷ $100 = 10% gross margin
After the supplier increase:
- $100 selling price − $95 supplier cost = $5 gross profit
- $5 ÷ $100 = 5% gross margin
As you can see, the same $5 increase has a very different impact on each product:
- Product A loses $5 of profit, which accounts for a 12.5% reduction of gross profit.
- Product B also loses $5 of profit, but its gross profit drops by 50%.
This is where simple math can help you in your decision-making. Look at both the dollar and percentage impact. How much gross profit will you lose on each sale, and how much will your gross margin fall? Meanwhile, is the remaining gross profit enough to make the sale worthwhile?
Ultimately, the right decision comes down to whether absorbing the cost or raising your price will have the smaller overall impact on your SMB.
How might your customers react to a price increase?
Generally speaking, customers are less likely to accept a price increase when they can easily find a similar product elsewhere. In fact, recent McKinsey research shows that 40% of consumers in developed markets have switched retailers in search of better prices and discounts.
Conversely, customers may be more willing to pay a little more for a specialized product or service that’s harder to replace—or one that offers a level of quality, convenience, or service they can’t easily get elsewhere.
Before passing on the increase to customers, consider how many alternatives your customers have, how easily they could find a comparable alternative, and whether your product or service offers enough value to justify the difference.
Meanwhile, don’t overlook the power of customer loyalty. Customers who value your product, service, or relationship—and who see a clear reason to choose you over the competition—may be more willing to accept a modest increase.
Is the product or service essential or discretionary?
Customers may also respond differently to price increases depending on how necessary the purchase is:
- When prices rise on essential items like groceries or gas: Customers are likely to look for ways to save while continuing to buy them, with workaround strategies including seeking out lower-cost substitutes or sales, or settling for smaller quantities.
- When facing price increases on discretionary items like electronics, going out, or getting a haircut: Customers may be more likely to postpone making the purchase, or not make it at all. In fact, according to McKinsey, buyers are increasingly changing how—and whether—they buy discretionary products as prices remain under pressure.
So, what does this tell us?
With essential products, you may have more flexibility to pass along some of your increased costs. But don’t assume customers will readily accept the entire increase—they may still buy less or go elsewhere to get what they need.
As for discretionary items, the risk can be greater, with a price increase potentially causing customers to delay or eliminate the purchase altogether. If you need to raise your prices, a smaller or targeted increase may be less likely to discourage customers versus passing along the full increase at once.
What are competitors charging?
Knowing the general market price can help you determine whether you have room to adjust your own pricing.
For example, if you’re already charging more than similar businesses, it may be harder to justify asking customers for more money. But if your products or services are priced at or below the market, you may have some wiggle room to do so.
Can you reduce costs somewhere else?
Don’t want to absorb the cost or pass on the increase to customers? Look for ways to offset it across your business such as:
- Reducing your energy usage.
- Cutting unnecessary subscriptions.
- Shopping around for more affordable business insurance premiums.
- Eliminating business bottlenecks that prevent your SMB from focusing on higher-value activities.
- Freeing up cash trapped in slow-moving inventory.
And of course, you can also negotiate with your suppliers, as we explain in the next section.
You don’t necessarily need to target one major source of savings. Even a few dollars saved here and there can add up, helping you protect your profit without requiring a price increase.
Be Strategic With Your Suppliers
Do you always pay your suppliers on time and make orders consistently? You may have more room to negotiate than you think.
And you can put that good standing to use year-round.
Don’t wait to be hit with a surprise supplier price hike. If you’re worried about the possibility of a future increase, reach out proactively to see what your supplier can do to help keep your costs manageable.
And you don’t have to specifically ask for a lower unit price. In fact, you may be able to reduce your overall costs by changing how or when you buy.
For example, ask about:
- Volume discounts: Can you get a better per-unit price by increasing your order size?
- Alternative products or materials: Do they carry a comparable, less costly option that still meets your needs?
- Shipping costs: Are they open to combining shipments or offering lower delivery fees?
- Locking in current pricing: Would they consider securing your current rate for the next six or 12 months?
- Payment terms: Could you have more time to pay without increasing the purchase price?
Even if they can’t lower their prices, more predictable supplier costs can be just as valuable. A price lock or more flexible payment terms can help you budget and plan ahead with greater certainty, which can do wonders for improving your cash flow.
Build a Supplier Safety Net
A word of caution for SMB owners: it can be risky to rely too heavily on a single supplier.
Having at least one backup will give you more options if your primary supplier hikes prices (or if they experience a disruption that prevents them from fulfilling your orders).
If you don’t already have one, do your due diligence and research alternative suppliers, including:
- What they charge.
- How quickly they can deliver what you need.
- Any minimum order requirements they have.
- Whether they provide the same or comparable products or materials.
Just remember: the cheapest supplier isn’t always your best choice. Reliability, product quality, customer service, and consistency also have value. After all, saving a few dollars per order isn’t worth it if a late shipment prevents you from serving your customers.
In other words, don’t set your supplier relationships on autopilot. Taking an active approach can give you more control over your costs—and more options when prices change.
Get Merchant Working Capital to Act When Opportunities Arise
As mentioned above, sometimes the best way to manage a supplier price hike is to get ahead of it.
A supplier might offer a limited-time discount for a larger order. Or maybe they’re planning to raise prices by 12% next month, but willing to let you purchase items at the current price before the increase takes effect.
Both opportunities would allow your SMB to save money. The challenge is having the merchant working capital available to act quickly, before such offers disappear.
This is where speed is of utmost importance. It can take weeks, even months, to secure traditional financing from a bank—and that’s assuming your SMB meets the stringent eligibility requirements.
Thankfully for small businesses, alternative funders are there to provide accessible, fast financing, often within just 24 hours of applying.
For example, Bitty offers two specialty products, each with its own benefits in addition to expediency:
- Flexibility: Through revenue-based financing, SMBs quickly access a lump sum and then make repayments through a percentage of future sales. Since repayments are tied to business performance, you’ll pay less during slower months, and more during busier periods.
- Predictability: With a fixed-fee business loan, the total repayment amount is established from the very beginning, so you know from the get-go how much you will repay. No need to worry how changing interest rates might affect your borrowing costs in the future; rather, it makes it easier for SMBs to budget.
Ultimately, fast access to working capital through an alternative funder like Bitty can give your SMB the ability to take action when it matters most.
Take Control of Supplier Price Hikes With Bitty
Sadly, inflation and resulting supplier price hikes aren’t going away anytime soon.
But while you can’t control what suppliers charge, you can control how—and how quickly—you respond to it.
And Bitty is here to help you through it.
Our fast-access financing products are custom-designed to help SMB owners like you access the funds you need, at the very moment you need them, empowering you to manage unexpected increases in costs, take advantage of opportunities, and keep your business moving forward.
Ready to take control of how your SMB responds to rising supplier costs? Contact Bitty today.
