As of January 2026, 13% of SMBs are putting more of their monthly revenue into operating expenses. These rising expenses – from tax and regulatory fees to general supply and admin costs – have led to a profit squeeze for many businesses, forcing SMBs to adjust their pricing strategy in 2026.
That said, there are strategies that SMBs can employ to manage increased operating expenses and protect their bottom line, which were revealed in our latest financial study. I’ll take you through the study’s key findings below.
Our in-house research team surveyed 322 small to medium-sized businesses in the US, gathering their thoughts on their financial situation in January 2026. Our questioning covered key topics, such as:
- The financial focus in 2026
- Operating expenses
- Reactions to external challenges like tariffs
- Strategies used to combat financial challenges
High Operating Costs Put Pressure on SMBs
With operational costs on the rise due to inflation and complex regulatory changes, many SMBs are feeling the pressure in 2026. Our survey revealed how:
- 13% of SMBs are allocating 41% or more of their monthly revenue to operating expenses
- There’s been a 5% rise in SMBs spending 26%-40% of monthly revenue on operating expenses
These rising costs have forced businesses to optimize their financial strategy and protect their profit margins.
Behind the Profitability Squeeze
According to our financial survey, these are the top five operating costs that SMBs said were negatively impacting their profitability the most:
- Taxes and regulatory fees (85% of SMBs)
- General supplies and admin expenses (84% of SMBs)
- Personnel costs (77% of SMBs)
- Tech and software (75% of SMBs)
- Inventory and the cost of goods sold (74% of SMBs)
Taxes and regulatory fees came out on top, with 85% of SMBs mentioning it as a key contributor to increased operational costs. This comes as no surprise when we take The One Big Beautiful Bill Act (OBBBA) into account. Though the act has led to significant tax cuts and deductions, it’s forced smaller businesses to pivot their financial strategies to remain compliant with these changes.
Additionally, with 39% of SMBs highlighting inflation and rising costs as the most challenging external factor for their business, the increased costs of general supplies and admin expenses, as well as personnel costs, have added more fuel to the fire.
The Fight for Profit: How SMB Leaders Are Managing Higher Operating Costs
But how are SMBs reacting to these rising operational costs? You can read what businesses are doing (and not doing) below:
What Are the 5 Most Popular Strategies SMBs Are Using?
Though high operating costs pose a significant challenge for SMBs, many businesses have already implemented strategies to help them manage their expenses and protect their margins. Based on our survey, the five most popular strategies for SMBs were:
- Cutting or pausing discretionary spending (18% of SMBs)
- Negotiating lower prices with key vendors or suppliers (16% of SMBs)
- Reducing spending on marketing and advertising (11% of SMBs)
- Reevaluating tech & software investments (11% of SMBs)
- Implementing new automation tech to replace manual tasks (10% of SMBs)
Out of the 18% of SMBs cutting discretionary spending, 33% were spending less on travel and accommodation, while 16% were cutting back on office supplies and improvements. Reduced spending in these areas highlight a responsible, cost-conscious approach for SMBs who are determined to only spend money where it is most necessary.
If you’re examining your discretionary spending and are finding it difficult to work out where to make cuts, think about it in relation to your business objectives. Ideally, you should be cutting spending in areas that aren’t directly contributing to your company’s goals.For example, if you’re aiming to boost employee retention and satisfaction, you’ll need to be careful when reducing spending on staff events, employee perks, or professional development opportunities.
Least Popular Strategies for Managing Operating Expenses
Out of all the strategies mentioned by SMBs, reducing staff and freezing or reducing hiring was least popular. In fact, reducing staff comes with its own financial implications. Not only do businesses need to consider redundancy expenses, but the costs of hiring and onboarding make it a less appealing strategy for SMBs in 2026.
Another unpopular strategy included renegotiating rent or downsizing physical space, which only accounted for 3% of the SMBs cutting discretionary spending.
What Other Strategies Are We Seeing From SMBs?
Price increases are another key strategy for businesses combating high operational costs. Out of the SMBs we interviewed, nearly half of them were planning to raise their prices in the next six months. And of those businesses, 39% intended to increase their prices by 2.1%-5%.
This data comes as no surprise. In an economic landscape filled with inflation, soaring expenses, and complicated tax and regulatory changes, a price increase can provide short-term, immediate relief – but only if it’s implemented correctly. Without careful research and planning, a price raise could scare off your customers or give your competitors the advantage.
If you’re considering increasing your prices, it’s important to justify your price hikes by determining your business’s value and communicating this value to your audience.Additionally, you’ll need a strong understanding of where you stand in the market, so conduct customer and competitor research to ensure that your new pricing is still in line with industry standards.
How Will Your Business Navigate Rising Operating Costs?
If you’re worried about operating costs impacting your profit margins, take inspiration from some of the most popular counter-strategies listed about that other SMBs are using. Whether you’re considering cutting discretionary costs or negotiating lower prices with key vendors, it’s important that these decisions aren’t rushed and truly align with your business’s long-term goals.
💡Discover more exclusive insights from our survey by reading our guide to customer service trends in 2026.
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