Input Costs Rose. 76% of Owners Raised Prices. 13% Changed Where They Buy.

The Fed asked more than 6,500 small employers what they did when the cost of their imported inputs went up. Almost all of them reached for the two levers they could pull alone. Almost none of them touched the one that would have changed the cost itself.

Half of small employers are buying from abroad

The first surprise in the Fed’s 2025 Small Business Credit Survey is how ordinary imported inputs have become for businesses that would never describe themselves as importers. Forty-eight percent of small employer firms said they source at least some of their inputs from outside the United States. Fourteen percent source more than half of them that way.

These are not trading companies. They are firms with fewer than 500 employees — the survey reached more than 6,500 of them — buying components, ingredients, packaging, parts and finished goods through distributors who buy abroad. Most owners in that 48% would not think of themselves as exposed to international pricing until the invoice changes.

A large majority of the firms in that 48% reported that the price of those inputs went up from 2024 to 2025. That part is not surprising. What they did next is.

Two levers got pulled. The third one didn’t.

The Fed asked those firms how they responded, and let them pick more than one answer. Seventy-six percent passed at least some of the increase on to their customers. Sixty percent absorbed at least some of it. Then the numbers fall off a cliff: 13% moved to a domestic supplier, 8% found a different foreign one, and 3% relocated production to the United States.

Look at what separates the top two from the bottom three. Raising your price and eating the cost are both decisions about who pays the higher number. The customer pays, or you pay, or you split it. In every one of those outcomes the input still costs what it costs.

Changing the supplier is the only move on the list that changes the number itself. Twenty-one percent of firms tried it in some form, and if you count only the ones who actually moved production, three percent.

Raising the price and eating the cost are the two things a founder can do alone, on a Tuesday, without anyone’s help. That is most of the reason they are the two things that got done.

This was not a niche problem

Cost pressure was the dominant theme of the whole survey, not a footnote in a trade section. Rising costs of goods, services or wages was the most common financial challenge reported in the prior twelve months. More than four in ten firms separately reported increased costs associated with tariffs. Seventy-seven percent reported one or both.

The tariff pressure was not evenly spread. It landed on 69% of retail firms and 62% of manufacturers — the two sectors whose cost of goods is the largest line in the business — against the roughly four-in-ten average across all firms.

And the expectations moved with it. The survey’s revenue expectations index fell from 39 to 33 and the employment expectations index from 26 to 23 — both the lowest readings since the 2020 survey. Owners were not only paying more, they were planning for less.

The lever you don’t pull is a decision too

None of this makes the 76% wrong. Passing cost through is often exactly right, and there are real reasons a small firm does not change suppliers: the volume is too small to interest a new vendor, the switching cost eats the saving, quality risk on a component you cannot easily test, or a distributor relationship going back fifteen years that is worth more than the margin point.

But those are reasons to conclude you should not switch. What the 13% figure suggests is that most firms never got as far as concluding anything. The price went up, the invoice had to be paid, the two available levers got pulled that week, and the third one — the one that requires a month of sourcing work before it pays anything — stayed where it was.

This is the shape of almost every expensive decision a founder makes alone. The move you can execute today wins over the move that would have been better, not because you judged it better, but because it was the one that fit in the gap between two other emergencies. Nobody chose to absorb the cost forever. They chose to absorb it this month, eleven times.

The practical version is small: for your two or three largest input lines, find out what they cost from someone else. Not to switch — to know. If you cannot say what your biggest supplier would have to be beaten by, you are not deciding to stay with them. You are just staying.

I have sat with a lot of owners who could tell me their price to the penny and could not tell me their second-best supplier’s quote. The first number is the one you control least, and the second is the one you never looked at.

Published by The Lonely Entrepreneur — the community and coaching platform for entrepreneurs who are building alone. lonelyentrepreneur.com

This article is for educational purposes and is not a substitute for professional financial or legal advice.