By Gene Marks, Opinion Contributor — THE HILL
This client runs a distributorship of automobile parts, and President Trump’s tariffs have put him in quite a pickle. He’s looking at price increases of anywhere between 5 and 15 percent on the products he’s buying. If he passes this price increase directly to his customers, he could lose business. But he’s smart — he does the math, and realizes he doesn’t have to.
Suppose there’s a 10 percent increase on a certain product he buys. Previously, he would buy this product for $70 and sell it for $100, making $30 and a 30 percent profit margin. To weather tariffs, one might think he needs to raise prices to preserve that 30 percent margin. But that’s not true — he will be doing just as well if he keeps making $30 per sale. That means he only needs to raise prices by about 7.5 percent, instead of the 10 percent he would need to sustain the same percentage margin.
His approach — the right approach — is to protect the margin dollars, not the percentage. He’s still getting $30 on the sale to cover his overhead. And he’s not charging his customers more than he needs to, which can go a long way toward keeping them as customers in the future.