The economic impact of tariffs: How local businesses can plan ahead

The economic impact of tariffs: How local businesses can plan ahead

Economic uncertainty affects everyone, but how do tariffs impact small businesses in particular? Recent news about import duties, interest rates, and taxes can feel like a roller coaster. Still, with preparation and agility, savvy business owners can make the most of whatever the economy brings.

Square takes a closer look at how local businesses can continue to build customer loyalty and work to maintain profitability in the face of economic uncertainty.

Understand and optimize your cost structure

Tariffs are taxes that companies and individuals pay when importing certain goods from other countries. For example, if you’re a retailer and buy a product for $100 from a country where a 25% tariff applies, you would have to pay $125, including an extra $25 in tariffs.

Tariffs drive up the cost of imported goods, squeezing profit margins. If your costs are rising, it’s a good reminder to review your operations, shop for the best supplier pricing, and carefully plan your inventory based on sales forecasts. Always know your break-even point to keep your business on track for profits.

“I update my menu costing sheet every time Sysco delivers,” said Joseph Brown, owner of Super Smash Burgers in Vancouver, British Columbia, Canada. “This sheet shows me each item’s food cost with the suggested pricing.”

Identify items most affected by tariffs and seek domestic or alternative suppliers if needed. Sophy Kohler, owner of Park City Nursery in Park City, Utah, is protecting her business’s bottom line by increasing prices and by sourcing more domestic products. “Yes, tariffs will impact us. About 75% of our products are imported and most orders are above $800 so we’ll be hit by tariffs for all those products. Beyond that, a lot of our packaging comes from outside the U.S. so these ‘invisible costs’ will increase. We’ll do our best to pass these costs on to customers, but we’ll also be creative in adapting our product mix so we buy more U.S.-based products.” Kohler said.

Taking a close look at your supply chain will be critical. If you can automate your reporting and more efficiently manage your inventory, you’re freeing up more time to grow your business.

Adjust pricing without losing customers

If your costs increase significantly, you may have to pass some of that increase along to customers. Most business owners want to retain the same level of profitability, but sticker shock could push current customers away to competitors.

Chip, owner of Piper’s Ice Cream Bar in Covington, Kentucky, said he “had already decided in November last year to raise prices by 5% this year. [He] arrived at that number by looking at the sliding 12-month inflation trends, and that seemed about right to [him].”

Pass higher costs to customers with care, as this can backfire in price-sensitive markets. Some companies use dynamic pricing to identify high-demand and exclusive products that may be more tolerable to customers if the price rises. You can also add tiers, with premium and value-priced versions of products to suit a wider potential customer base.

Strengthen customer loyalty and repeat business

In a tight economy, retaining customers becomes more valuable than ever. However, encouraging repeat purchases can be challenging when customers are cutting back on spending. By rewarding customers for repeat purchases, referrals, and larger basket sizes, you can motivate customers to keep coming back for more.

Communicate value—don’t just compete on price. Consider how you can offer a luxury or more valuable experience compared to shopping with a competitor. Tracking redemption rates and communicating with your top customers can help you find win-win opportunities to build loyalty and repeat business.

To offset a dip in traffic, Arthur, owner of The Locavore Store in Hilo, Hawaii, said he simply kept the doors open an extra hour each night, a move that “increased sales by 5.7% in the first month.”

As you decide where to spend your marketing dollars, it’s worth noting that consumers surprisingly prefer cost-effective, one‑to‑one channels like text message and email. According to the 2025 Square Future of Commerce report, 63% of shoppers want to hear from brands by email. Well‑timed, personalized email and text offers meet customer convenience expectations and give your business an inexpensive way to lift in‑store and online sales.

Streamline operations and reduce overhead

With tighter margins, every dollar saved on overhead and operating costs becomes more critical. Automation isn’t just about streamlining workflows; it can directly improve your bottom line.

Many retailers already use technology to handle everyday tasks like inventory tracking, email marketing, and customer service. Inventory software can automate stock tracking and supply orders, and staff scheduling tools can free up time for customer engagement and strategic planning.

For many owners and managers, exploring automation technologies and AI is another way to find increased efficiency without expanding headcount.

Diversify sales channels to reduce dependency

Modern consumers like a combination of options when engaging with your brand—whether they’re visiting a coffee shop that sells plants and jewelry, or a retail shop that doubles as a wine bar at night.

New product or service offerings, like subscriptions, events, and memberships, can bring in additional sales from existing customers. Even if you run your business from a brick-and-mortar location, adding online sales and plugging into other sales channels can boost your business.

“We’ve been doing workshops every Saturday for 15 years,” said Cara Meyers, co-owner of Dig Gardens, a garden center with two locations in the Santa Cruz, California, area. “When people come into the store for an experience, then they say ‘well I’m here, I might as well get this thing or that’.”

“Fifteen years ago we were in the middle of a recession, so we had to really think out of the box as business owners about how to get people physically into our business. We’ve been doing it ever since,” said Meyers.

That kind of creativity can still pay off today, especially as customer expectations and shopping habits shift. A competitor analysis can help you find ways your business may be lagging or can stand out as a top choice for customers.

Offering subscriptions or recurring services is another way to drive predictable income while delivering ongoing value. By selling online and in person, you can meet customers wherever they prefer to shop, whether at a weekend event, in your storefront, or through a mobile-friendly online store. A flexible, multichannel strategy can help you reach new audiences, improve convenience, and keep revenue flowing even when conditions shift.

Stay agile with real-time insights

While it’s wise to keep updated books and review your revenue and profitability trends at least once per month, you can pick additional key performance indicators (KPIs) that you believe are most important to your business. Tracking those numbers daily, or even in real-time, can help you immediately detect good or bad trends and respond quickly.

In volatile environments, fast decisions can make or break a business. Monitoring sales, customer behavior, and inventory can help you act quickly on underperforming products or overstock. That fast pivot can be critical in maintaining profitability during challenging economic conditions. As always, it helps to have all parts of your business in one place.

Resilience through the right tools and smart strategy

When you combine the latest technologies with your knowledge and experience, you’re on the best path to develop winning strategies that carry you through anything the economy throws your way. Economic uncertainty is inevitable, but businesses that stay informed, flexible, and connected to their customers will weather the storm.

This story was produced by Square for its publication The Bottom Line and reviewed and distributed by Stacker.