Strategizing for the Effects of Tariffs on Your Connecticut Business
“Before anything else, preparation is the key to success.” – Alexander Graham Bell
You’ve got some decisions to make right now. To respond to the recently increased tariffs, you’ve got a few options: Raise your prices, internally absorb the extra costs, or change suppliers.
The first option risks your goodwill with your customer base. The second hurts your bottom line.
So, what’s the best approach in this situation? As with most things in life, it’s a balanced one. The best strategy for your business is the combination of moves that will cause the least amount of friction in your internal operations and your customer base.
How do you find that balanced strategy? I’ve got a few thoughts…
Measure the damage
First, calculate the effects of the tariffs on your business, in terms of your profit margins. Start by pulling out your inventory or product catalog. Look at what you import and where it comes from, then cross-check those items with recent tariff changes.
Compare the total cost of each product (with shipping, duties, and tariffs) from before the increase to now. How much are your profit margins shrinking?
Then, use the strategies below to cover the financial ground you need to make up. And do some experimenting here – try creating multiple plans that combine these strategies in different ways, calculating the overall impact of each one on your bottom line to help you decide how to move forward.
Strategy 1: Change suppliers.
The goal here isn’t just to find someone cheaper. You’re trying to understand how a supplier switch would affect all the moving parts of your business: logistics costs, fulfillment timelines, inventory management, etc.
Take a look at your suppliers. Which ones are in regions now subject to tariffs? Which of your products do those suppliers contribute to? And (most importantly), how much of your cost structure do they represent?
After flagging your most tariff-sensitive suppliers, start sourcing potential alternatives. Reach out for quotes, lead time estimates, and payment terms to build out a comparative analysis.
Strategy 2: Tweak your pricing.
Now, don’t hit your customers with a sledgehammer of increased prices all at once. Up your prices by gentle, staged increases, and communicate transparently with them.
No, they might not be happy about higher prices, but clarity builds trust. And rather than a vague “costs have gone up” announcement, try something along the lines of:
“Starting next month, you may notice a small 3 percent price adjustment. This change reflects increased supply costs and global market shifts, but we’re working hard to keep it minimal. Our commitment to delivering excellent service and quality products remains stronger than ever.”
Strategy 3: Adjust your product offerings.
Weigh the cost of keeping your most tariff-impacted products on the shelf vs. putting more of your resources toward other high-performing items. If a product’s new margin doesn’t justify that cost, try to cut it down, or consider discontinuing it.
And where you can, find ways to re-engineer products to use materials that are domestically sourced. Also consider strategic bundling – creating packages, kits, or subscriptions that combine a high-margin product with a tariff-hit product.
Looking ahead
Future tariff changes are pretty much inevitable. The most effective way to handle those in your business? Scenario planning.
Start by brainstorming what possible tariff changes could be ahead that would impact your business, and create a plan for how you would react to them. (Hint: strategies 1-3 are a great place to start.)
For example, let’s say you print and sell branded merchandise. You anticipate a future scenario where the tariff on China is raised by another 10 percent. Your plan for handling those costs might include shifting to source the blank t-shirts you print from a new Mexican supplier, with a plan to test the quality of the new shirts with a few local clients. You might also increase minimum order quantities to help reduce the per-item impact of the new tariff rate.
Ultimately, times like this are what Blue Horizon Tax Advisors is here for. Because there’s no one-size-fits-all answer to how your Connecticut business should react to the effects of tariffs – and we can help you figure out what YOUR unique approach needs to be. It’s vital right now not just that you keep your business moving forward, but that you can do so with confidence. So, let’s strategize together: