2022 Study: 57% of Small Businesses Cut Their Spending During the COVID-19 Pandemic
As we enter into the third consecutive year of the COVID-19 Pandemic, we’re still trying to determine the impact of the associated business disruptions in both the short-term and long-term fiscal health of businesses across all industries in previous years. This has been especially difficult given that there have been several distinct waves of outbreaks, and responses to those outbreaks have been as varied as the symptoms of the virus itself, resulting in instability in economic activity across all demographics and geographic regions.
Commentary across numerous channels over the last year shows us that there was a distinct downturn in business spending throughout the various quarantine and business closure periods and even during the recovery period, but we wanted to be able to provide our readers with quantified insight into small business spending in general. With this goal in mind, UpCity used Pollfish to conduct a survey of 600 small business owners, with an even mix of respondents sourced from the United States and Canada.
In this survey, UpCity explored questions related to small business consultancy that revolve around budget allocations and adjustments throughout the pandemic, changes to employee benefits in response to shifting workplace arrangements, and whether businesses continued handling projects in-house or chose to start outsourcing projects to streamline operations. The survey also addressed whether small businesses shifted their workforce into remote work arrangements or secured rental spaces rather than waiting for office buildings to reopen for use. In order to provide perspective, some of these questions queried business leaders as to their pre-COVID business practices and their current expenditure practices in 2022.
Our findings will address the following aspects:
- Business Revenue and Budget
- Employee Resource Allocation
- Small Business Projects
- Workplace Settings
In addition to the data from our Pollfish survey, we’ve pulled in real-world responses from boots-on-the-ground small business owners to the same questions to give our readers perspective on what our survey revealed about spending practices throughout the pandemic experience.
Business Revenue and Budget
Despite a majority of respondents’ annual revenue remaining at less than $500,000 both pre-COVID and now in 2022, 57% of small business owners still cut back on their business spending during the pandemic.
The quarantines and shutdowns due to the coronavirus had a significant impact at the start of the pandemic on business-to-business expenditures. Spending decreased across industries because many organizations shut down altogether or shifted to a remote work model and focused on retention rather than business growth. At the time, businesses were uncertain how long they would have to operate under such conditions and continued to reduce overall spending in departments deemed to be non-essential for operational continuity, with marketing taking a significant hit during this period.
However, even as states shifted and eventually eased lockdown measures, businesses adapted to new business models, working arrangements, and changing consumer demands, streamlining operations and keeping B2B expenditures low in order to recoup losses caused by the initial downturn. The imperative over the last three years across many industries has been to do more with less in order to maximize the bottom line, so it makes sense that regardless of very little shift in revenue, businesses continued to reduce spending where possible.
|Less than $500,000||64%||65%|
|$500,000 – $2M||21%||19%|
|$3M – $5M||8%||9%|
|$6M – $9M||5%||6%|
Did You Cut Back on Spending Since Spring of 2020?
57% – Yes, I cut back on business spending
34% – No, my business spending didn’t change
9% – No, my business spending increased
28% of small business owners allocated most of their budgets to marketing and advertising pre-COVID. 27% of respondents now focus their budgets most heavily on operations management in 2022.
Prior to the coronavirus pandemic, client growth and lead generation were the budgetary focus of a majority of our respondents. This year, as mitigating guidelines were lifted and businesses saw a resurgence in customer traffic, many organizations realized they weren’t built to withstand significant business disruptions and made the choice to pivot and launch new services and products through both existing sales channels and additional channels in order to future-proof against future challenges. Many turned to eCommerce and online engagement in order to meet customers where they continued to be more actively engaged.
Shifting manpower and business practices in order to engage clients through these new practices, then, justifies the slight shift in budgetary prioritization of operations over marketing. This is further evidenced by the slight boost in IT and HR budgeting in 2022, as new services or products provided via new avenues such as eCommerce platforms would result in increased expenses related to new software and IT solutions as well as training or hiring.
|Largest Business Expense||Pre-COVID||2022|
|Marketing and advertising||28%||25%|
|Company culture and/or employees/staff||13%||12%|
To dig deeper into how small business owners fiscal responses to the impact of COVID-19, we queried the community at large to weigh in on how they have shifted their budget allocations in response to the ongoing impact of the pandemic.
“We were lucky. When the pandemic hit and we had to switch to remote work, we were just about to hit the renewal deadline on our office lease. Partly out of budgetary necessity, we took the leap to fully remote and completely moved out of our office space. This freed up so much money in the budget that we were able to invest in growing into new markets even as our core revenue contracted in early 2020.”
—Ann Martin, Director of Operations, CreditDonkey
“When the pandemic started, we spent more money on operations management. We had to quickly switch to a work-from-home working style so we had to spend money in transforming our operations. We purchased online project management systems and spent money on training employees on how to use the platform. We spent less on print ads since most people are just at home and we channeled these funds into our operations. This move has been advantageous as company operations are now back to their maximum capacity and productivity of our employees is also very high.”
—Scott Hasting, Co-Founder, BetWorthy LLC
“Since my social analytics tool has already been set to its maximum performance with the many years of research and development, my business operations spending during the pandemic centered on cybersecurity. Internet of Things (IoT) devices have been the major target of cybercriminals during the pandemic, and my clients need assurance that our social analytics tool is highly secure. I fueled a significant amount of money to a managed service provider, keeping 24/7 security checks to all of my business systems and solutions.”
—Tim Hill, Co-Founder and CEO, Social Status
Delving into both the survey results and feedback from the community, we discovered that the operations management expenditure increases evidenced in our survey relative to the slight dip in advertising spend largely stemmed from shifting operations and changing strategic approaches to lead generation to SEO and digital advertising efforts, which is less labor-intensive and allowed reductions in ad-spend. We also found that some of the budgetary expenditure increases in operations stemmed from reductions made possible in other line items such as facilities due to a shift towards remote work arrangements.
Remote work brought its own expenses to the table as businesses had to shift resources to safeguarding data generated outside of the business network infrastructure, resulting in a proportionate increase in IT spend. Overall, marketing spend reductions were the result of a shift in marketing behaviors, and efforts to retain and maximize existing client relationships going into 2022 means that small business owners are taking a somewhat different approach to business spending and budgeting overall compared to pre-COVID strategies.
Employee Resource Allocation
Meanwhile, 27% of respondents also increased their budget for software and tools in 2022.
This increase in software and tools was addressed in the previous section, but it’s important to understand the need for better software solutions in 2022 and post-COVID business strategies. While revenue in many cases actually increased throughout the pandemic, the bulk of increased income streams was a result of increased online purchasing behavior by consumers. In order to support increased eCommerce or even a pivot in the business model to eCommerce, businesses have had to increase their IT spend on developing and maintaining those platforms.
Increased IT spend also stemmed largely from the shift to remote work arrangements for many organizations that didn’t have the tools or infrastructure in place to support such working arrangements. Remote work required businesses to deploy new software and networking solutions to minimize the impact such a shift would have on the customer experience and employee efficiency. Software automation solutions also played largely into this expense increase, as many organizations had to find solutions for a reduced workforce in order to keep pace with increasing consumer demands.
2022 Increased Expenses
27% – Software and tools
18% – Other
15% – Marketing and advertising spend
14% – In-house hiring
13% – Third-party service outsourcing
13% – HR benefits and payroll
48% of small businesses had 2-5 employees pre-COVID. 55% of respondents still have 2-5 employees in 2022 with a 7% increase.
The COVID-19 pandemic has had a significant economic impact on small- to medium-sized businesses and their ability or willingness to maintain staffing levels. We’ve seen massive job losses across vast sectors of the labor market. Our survey showed a 7% increase in the number of businesses retaining less than five employees, but it also showed a 7% decrease in the number of organizations retaining more than 251 employees.
Despite revenue streams remaining stable and in many places growing, certain operational shifts such as remote work arrangements and the increased use of automation software solutions by small businesses means that going into 2022, businesses are either choosing to or being challenged to operate with minimal staffing levels. This not only stems from organizational changes imposed by leadership but also massive challenges in employee retention due to the Pandemic-inspired Great Resignation that has taken place throughout 2021 and continues into 2022.
34% of small businesses increased their employee’s pay since the COVID-19 pandemic. 34% of those businesses also expanded their health benefit options, including mental health benefits.
The Pandemic has been a wake-up call for not just the workforce, but also business owners. While many businesses were helped by government programs such as the Paycheck Protection Program, not every small business was covered by the PPP, and therefore it was difficult to maintain payroll and staffing when many businesses had little to no revenue coming in. While layoffs were common, many businesses understood the human element involved and worked as hard as they could to maintain their staffs and adjust policies to meet their needs.
And those needs are shifting. It’s becoming more obvious that workers more than ever in the past are prioritizing work-life balance, mental health, and the ability to provide for their families and that they are unwilling to work in jobs where they feel the compensation and benefits don’t match the expectations of performance or workload. In order to stabilize their teams and retain talent, many employers in the wake of the pandemic are increasing pay. They are also increasing pay in the efforts of attracting talent in order to build and bolster teams to handle increased consumer demand.
Expanding benefits to include mental health support and other associated medical costs has also become a priority in many businesses’ total compensation packages, as employees are increasingly prioritizing mental wellness and work-life balance. They also want to see value beyond monetary compensation and be provided with benefits that enhance the employee experience.
Increased company culture/employee spending in 2022
34% – Increasing employee pay
7% – Onboarding more staff
20% – Adding new and/or more employee benefits
28% – Expanding the company culture budget for more company events and activities (in-person or remote)
11% – Other
Employee Benefits Expansion in 2022
34% – Health benefits (Including mental health)
3% – Tuition reimbursement
9% – Company stock options
6% – Retirement plans
9% – Life insurance policies
14% – Home office equipment stipend
26% – Paid leave policies
0% – Other
Let’s explore this shift in employee benefits and compensation throughout the pandemic more in detail by exploring feedback we solicited from small business owners.
“Since Funeral Funds became fully remote during the pandemic, we provided our remote agents and employees with company-paid internet access. It helps everyone stay connected and productive. It also ensures that everyone in our team has the same access to information and resources. Having good stable internet access is an essential productivity benefit that helps our team complete their task efficiently. It improves productivity even when our team members are living in different parts of the world.”
—Randy VanderVaate, Founder and CEO, Funeral Funds of America
“One of the most important decisions a company can make is to ensure that their employees feel comfortable in their physical well-being. We are increasing the number of comprehensive healthcare solutions available to our employees as a major aspect of their compensation. Anything from better telemedicine coverage to paid time off for COVID-19 immunizations or booster doses could be included in this provision.”
—Marc Stitt, Chief Marketing Officer (CMO), FMX
“During the pandemic, we started partly refunding expenses related to ergonomic material for work as well as sports material for training from home. We figured since our employees couldn’t go to the office or sports facilities, we’d make life easier for them and keep them healthy and safe for the pandemic journey. We also expanded upon our healthcare offer and improved our packages. We knew that the pandemic would put a strain on public services, so we thought we would do well to expand upon our healthcare offer to make life easier for our employees. With all the costs we were cutting from not renting an office space, it was the bare minimum we could do.”
—Rafal Mlodzki, CEO, Passport Photo Online
The COVID-19 crisis was, by all accounts, an opportunity for businesses in every sector and industry to hit the reset button on operations. Many have taken the time to assess their organizational structures and standard operating procedures, adjust staffing levels to best meet customer demand, and adapt benefits and pay structures to the changing expectations of employees moving forward. In many ways, this future-proofing will set up savvy and responsive small business owners for long-term success by positioning them as employers who can be trusted to offer employees a stable and positive experience in times of crisis and an adaptive and forward-thinking workplace in day-to-day operations.
Small Business Projects
36% of small businesses handled their tasks in-house pre-COVID. 44% of respondents continue to handle their tasks in-house in 2022 over hiring third-party help, with an 8% increase.
Our findings in the outsourcing practices of our respondents tell two different stories, depending on how you categorize third-party help. If you take each channel of outsourcing separately, we see a significant shift away from outsourcing and an embrace of tackling projects with in-house staffing by a majority of our respondents. However, whether you’re working with a contractor, a freelancer, or a third-party agency, each of these channels requires you to bring in outside help and when combined, you can see that pre-COVID, 55% of our small business respondents were outsourcing in some manner. Going into 2022, the 8% increase in in-house teams is actually a result of a decrease in the number of firms outsourcing to contractors and agencies.
In some ways, outsourcing to consultants is the perfect strategy for organizations to continue to thrive and expand during times of growth and expansion, giving a business time to adapt to and grow their team and infrastructure to handle increased demand. With the initial downturn in sales, the uncertainty infused into the economy by the pandemic, and the necessary shift to remote and hybrid work arrangements, however, it follows that small business owners are being forced to first recover by handling projects in-house more often. As businesses increase the efficiency of project workflows and provide existing customers with the assurance that the services are stable, the business will continue to grow and expand back to the point where they will need to likely take on third-party service providers in order to continue growing.
With so many industries hard hit by the pandemic, and the massive job migration out of retail and food services, we’ve seen a significant rise in both entrepreneurship and the gig-based labor force, as full-time, self-employed freelancers and capable and ambitious business-minded individuals all realize that the private sector desperately needs specialized service providers and they are able to provide those services to companies. This provides those individuals with the ability to maintain work-life balance and remain agile and responsive to market demands without being stuck under a single employer. This migration in employees is further fueled by the short-term cash flow many enjoyed through the CARES act and other government interventions and stimulus granted by policymakers to help maintain public health and fiscal stability.
“It makes sense because you have more control over your projects in an ever-changing environment. It’s also easier to uphold client satisfaction standards.”
—Bruce Leto, Jr., Owner/Operator, Dynamic Wave Consulting
|Working with freelancers or consultants||22%||25%|
|Working with contractors||23%||17%|
|Hiring third-party agencies/providers||10%||6%|
Feedback provided by small business owners outside of the scope of the survey largely supports this, with a majority actually claiming that they increased their outsourcing throughout the pandemic in order to survive and maintain business continuity.
“As a young startup, we had relationships with a number of third-party firms that helped us with operations. Some of them went through their own COVID-era reinventions, changing the way they operated or who they operated with, or closing entirely. This led us to take some operations in-house while in other cases we sought new firms to work with. The agencies we worked with that kept the course ended up becoming much stronger partners for us. The fact that they were able to weather the storm and keep their focus on their clients really impressed us. Those are the kinds of companies you grow with, and it’s no surprise when you decide to increase your spending with them. That stability is what businesses need nowadays.”
—David Patterson-Cole, CEO, Moonchaser
“The pandemic disrupted my business model as The Great Resignation became David to my Goliath. Employees began to resign in large numbers as healthcare became a primary concern. Considering the ever-changing business needs, we shifted towards outsourcing tasks to third-party. The type of task that we assigned to the third party included devising a marketing strategy that would incorporate actionable metrics. We also shifted administrative tasks such as answering calls to a third party compared to previously handling them in-house.”
—Eduarda dePaula, CEO, FindByPlate
“The pandemic triggered some of the most radical employment trends in recent history and one of these trends has been the rise in the number of active gig workers in the current market, as well as the rise of remote working. And with the talent shortages being experienced in almost every industry, we opted to pivot towards bringing in more specialized freelance workers, in order to fill in the open positions and close the knowledge gaps within our workforce. And this, in turn, has actually allowed us to become more agile in our business operations, speed up project workflows, minimize hiring/training costs and also maximize working hours, all of which has aided us in reinforcing our business stability and maintaining productivity in this new remote/hybrid work environment.”
—Kathleen Ahmmed, Co-Founder, USCarJunker
With this added insight from small business owners in conjunction with the trends we see from our survey respondents in outsourcing versus in-house teams, we believe that the decrease in third-party teams and outsourcing also had to do largely with businesses that were not providing essential services and remained closed throughout the pandemic, only now getting back up and running and not having a need for the support of external service providers. As businesses continue to recover and revenue streams grow, we feel it’s only a matter of time before we see a return to pre-COVID levels of outsourcing and utilization of third-party service providers.
63% of businesses were fully remote pre-COVID. A majority of small businesses in the U.S. and Canada remain fully remote in 2022 with a 4% increase.
Remote work and hybrid work arrangements, contrary to the narratives being spun, are not new phenomena. Many industries, where possible, were already exploring flexible work arrangements for much of the 10 years leading up to the COVID-19 outbreak. Throughout the last decade, there has been a growing demand from employees for more flexible working arrangements which would allow improved work-life balance for households increasingly struggling to balance the needs of the family against long commutes and inflexible work hours.
There is a boon to the pandemic forcing many employers who might have been fighting this trend for workers, which lies in the proof of concept that the last two years have been for the concept of remote and flexible work arrangements. Record revenue levels in some sectors coupled with an overall acceptance that productivity remains largely unimpacted in many cases leads many to argue that widespread work-from-home is here to stay. This benefits businesses in a number of ways.
- Reduced facilities costs
- Operational Continuity throughout future disaster events
- Increased productivity and improved performance
- Improved employee morale and reduced absenteeism
- The ability to restructure pay and benefits programs to meet employees’ needs
|In-Person and Remote||Pre-COVID||2022|
|I rented office space for my business||37%||33%|
|My business was fully remote||63%||67%|
40% of small businesses rented an office space pre-COVID. 57% of those respondents remain in the same office space for 2022. 38% of respondents downsized their office space as a result of the pandemic.
As we mentioned above, one of the benefits of remote work and a direct result of the pandemic has been that many organizations that have made remote work a permanent arrangement can downsize their facilities dramatically. In more than a third of our respondents, completely shifting away from expensive office real-estate has been a boon to their bottom line during a time when any effort towards savings is crucial to maintain operational continuity given the business disruptions due to shortages and instability in the supply chain plaguing most industries.
Given the prices of rent pre-COVID, and the subsequent increases to rents since, it makes sense that efforts to streamline operations and make an impact where possible would start with an offloading of costly overhead, and shifting expenditures to assisting employees in a remote work arrangement.
Pre-COVID Monthly Office Rent Expense
40% – Less than $2,000 monthly
38% – $2,000-$5,000 monthly
18% – $6,000-$9,000 monthly
4% – $10,000+ monthly
2022 Office Downsizing
38% – I downsized my office space
57% – My office space remained the same
5% – I found a larger office space
5% of small businesses found a larger office space in 2022. 35% of those small businesses now pay $2,000-$5,000 per month on office rent.
It’s also important to recognize that not every state responded in the same fashion with lockdown mandates and in some industries, remote work isn’t the best fit. Even if a business embraces a hybrid model, it’s necessary to have office space. For certain industry segments, businesses actually experienced significant growth throughout the pandemic, so much so that a return to the office meant they were doing so with larger teams and had an increased need for infrastructure and equipment to support the additional staff. This meant that a minority of our respondents ended up coming out of the pandemic with increased overhead costs, but necessarily so in order to meet increased customer demand for services and products.
2022 Monthly New Office Space Rent Expense
34% – Less than $2,000 monthly
35% – $2,000-$5,000 monthly
16% – $6,000-$9,000 monthly
15% – $10,000+ monthly
We wanted to explore this trend in overhead costs with respondents from beyond our survey, so we asked small business owners what their approach to remote work has been both prior to and beyond the outbreak of COVID-19.
“Legiit had historically rented out a space prior to the pandemic. When COVID-19 hit hard, we initially attempted to hold the space, but thankfully we did not do so for too long. We decided quickly that we would shift to working online. Today, we’ve continued to operate remotely, either meeting in coffee shops or occasionally renting out business conference rooms for larger gatherings. We’ve continued to operate via online communication and virtual meetings. This has been a huge cost saving that I have been able to channel into my staff, allowing us to become more skilled and take on more risky projects than we might have prior to the pandemic. It has made the workspace more playful and encouraged creativity.”
—Chris Walker, CEO Legiit
“I turned my small backyard into a six-figure profit business during the past year. Trapped by the pandemic and feeling itchy, I decided to build an office shed during the lockdown. This would serve as my new office and would help me launch my digital marketing services worldwide and employ a dynamic staff globally who were all itching to work, no matter the circumstances that they found themselves in during Covid 19’s initial lockdowns. In my little garden office, which served as a great reminder to get up every morning, get dressed, and walk to my place of business, I assembled a team of twelve remote workers which helped my businesses grow and outperform competitors through digital marketing.”
—Robert Kirk, Founder, SEO Builder
“I rented office space before the pandemic. Since we were forced to leave our office space due to strict lockdown restrictions, the entire work model had to change. We completely shifted to remote work that helped save money on rent. It also helped employees improve their work-life balance, as they could juggle day-to-day tasks with work.”
—Alex Arevalo, Co-Founder, Gold Tree Consulting
Exploring the reporting on return to work statistics and the number of businesses that are continuing to offer remote work and hybrid work arrangements, we’ve seen that this is largely a regional trend and often depends on the type of services or products being provided to customers. However, with the percentage of employers who are continuing to offer flexible work arrangements and the rhetoric coming from small business owners, it’s refreshing to see that flexible work models are here to stay and will continue to evolve as business models evolve to meet the needs of the ever-changing workforce.
Small Businesses Forced to Spend Their Way to Survival Throughout the COVID-19 Pandemic
Though the conversations around the future of the COVID-19 Pandemic continue to be ever-evolving, and the reopening process is largely already underway in most parts of the country, there’s no denying that we are entering the third extremely challenging economic year in a row due to the impact the disease has had on consumer behaviors and the ability of businesses to maintain operational continuity.
Through the survey data gathered by Pollfish, we explored the initial fiscal responses of small business owners to the Pandemic and showed how budgets in 2022 have evolved to handle current trends in customer behaviors. Organizations are no longer relying only on marketing to build business and generate leads, but are also taking this opportunity to streamline and improve operational stability, address staffing issues, and supplement shortages in skillsets with outsourced help where possible—all necessary steps to help build and grow revenue streams by maintaining and improving existing customer relationships. If you want to explore more about how to pivot in your budgeting and maximize the impact of your spending in various channels, you should explore UpCity’s marketplace of business consultants and our content related to helping improve your business’s operational stability.
UpCity’s Survey Method
UpCity used Pollfish to survey 600 small business owners in the United States and Canada. A majority of the survey respondents have been in business for 3-5 years (29%) and have 2-5 employees (48%).
Fifty-five percent of the small businesses surveyed are B2B and 45% are B2C. Most of the respondents work in the Construction (11%), Arts and Entertainment (10%), and Finance and Insurance (8%) industries.
Fifty-seven percent of the respondents are male and forty-three percent of the respondents are female.