If any part of your product — raw material, packaging, a component you import directly — comes from overseas, a new or increased tariff can raise your cost of goods overnight, with no warning built into your existing pricing. This is a real operational problem for small businesses in a way it usually isn't for large retailers, who have more room to absorb short-term cost swings.
Here's a practical way to work through a repricing decision instead of guessing.
Step 1: Find your actual landed cost increase
Before touching your prices, calculate the real cost impact — not the headline tariff percentage, which often applies to only part of your total cost:
- Identify what portion of your product cost is the tariffed material or component (not the whole product cost — just the imported piece).
- Apply the tariff rate to that portion only, not your total unit cost.
- Add any new customs processing or brokerage fees, which often increase alongside tariff changes and get missed in a quick estimate.
If a product costs $20 to make and $8 of that is an imported material now subject to a 15% tariff, the cost increase is 15% of $8 ($1.20) — not 15% of the full $20. The new cost is $21.20, a 6% increase on the total product, not 15%.
Step 2: Decide how much to pass to customers
You generally have three options, and most businesses end up blending them rather than picking one:
- Pass the full increase through — keeps your margin intact but risks losing price-sensitive customers, especially if competitors haven't raised prices yet.
- Absorb it entirely — protects sales volume short-term but compresses your margin, which is only sustainable if the increase is small or temporary.
- Split the difference — raise prices enough to cover part of the increase while absorbing the rest, often the most defensible option if you're uncertain whether the tariff is temporary or permanent.
Step 3: Look for ways to reduce the exposure, not just the price
- Ask suppliers about sourcing alternatives for the specific tariffed component — sometimes a comparable material from a different country of origin isn't subject to the same tariff.
- Check if your product qualifies for any exemption or exclusion process. Trade policy changes sometimes include exemption requests for specific product categories — worth checking against current U.S. Trade Representative or Customs and Border Protection guidance for your product's classification.
- Reconsider order timing and quantity. If a tariff is newly announced but not yet in effect, there may be a window to place a larger order at the old rate — weigh that against the cash flow cost of holding more inventory.
Communicate a price increase tied to a cost change plainly rather than burying it. Customers generally respond better to "our material costs increased due to a new tariff" than to a silent price change they discover on their own — and it sets a clear, defensible reason if the increase needs to be reversed later.
Building this into how you price going forward
If a meaningful share of your costs are imported, it's worth building a standing habit of tracking tariff and trade policy news for your specific product category — not to react to every headline, but so a change doesn't reach your cost of goods before you've had a chance to plan for it. A pricing structure with a small built-in buffer for import cost volatility is more resilient than one calculated tightly against current costs alone.