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How much to raise prices after a tariff increase

A tariff increase raises your landed cost per unit. Before picking a new price, decide what you want to protect: the dollars each unit contributes, or your margin percentage. They lead to different prices.

The example

1,000 units bought at $10.00 each, with a customs value of $10.00 per unit, $2,000 of freight and $500 of other import costs. The selling price is $25.00, sales fees are 3% of the price and other selling costs are $3.00 per unit. The duty rate goes from 10% to 20%. Both rates are hypothetical; they do not describe any current tariff.

Per unit at $25.00	10% duty	20% duty
Landed cost	$13.50	$14.50
Contribution	$7.75	$6.75
Contribution margin	31%	27%

The extra 10 points of duty add $1.00 to landed cost per unit. At the old price, that dollar comes straight out of contribution.

Option 1: keep the dollars per unit

To earn the same $7.75 per unit, the new price has to cover the new landed cost, the other selling costs and the sales fee on the higher price. With old contribution c, new landed cost per unit L, other selling cost per unit v and sales fee rate f:

new price = (c + L + v) ÷ (1 − f)
= (7.75 + 14.50 + 3.00) ÷ 0.97 = $26.04

That is $1.04 more, or 4.2%. The extra 4 cents covers the 3% fee on the higher price, rounded up to the cent.

Option 2: keep the margin percentage

To stay at a 31% contribution margin m, the price has to grow with the cost, not just cover it:

new price = (L + v) ÷ (1 − f − m)
= (14.50 + 3.00) ÷ (1 − 0.03 − 0.31) = $26.52

That is $1.52 more, or 6.1%. Keeping the percentage always costs more than keeping the dollars.

A rule of thumb

For each extra dollar of landed cost per unit:

keeping the dollars needs 1 ÷ (1 − f) more on the price, here $1.03;
keeping the margin needs 1 ÷ (1 − f − m) more, here $1.52.

The higher your margin and your fees, the more each dollar of tariff pushes the price up if you hold the percentage. Whether customers will pay the new price is a separate question; neither formula answers it.

Work it out per SKU

A tariff increase of a few points adds that share of each SKU's customs value, so the extra cost per unit differs by SKU. A low-priced product with a high customs value is hit hardest. Work out the new price SKU by SKU rather than raising everything by the same percentage.

The tariff impact calculator shows the change in landed cost, contribution and margin for each SKU, and the price for any target margin (option 2: set the target to your current margin). For option 1, add the drop in contribution back with the formula above.

Open this example

The example opens with a 40% target margin, so its price for target goes from $28.95 to $30.71. To reproduce option 2, set the target contribution margin under “Costs and selling assumptions” to 31%. The example uses hypothetical rates. For your own products, enter a duty rate you have confirmed or your broker's amount. The formulas are explained in full on the methodology page.