With the recent implementation of new tariffs in 2025, many companies are facing significant challenges in maintaining product profitability.
While many companies are able to assess whether they can manage this additional cost at the company level, this blog aims to provide insights into how these tariffs impact profitability at the product level. For companies that do not currently analyze their products at this level, now is the time to start building the right analyses to drive strategic decisions to help mitigate the impact of the new tariffs.
Understanding the Impact of Tariffs
Tariffs are taxes imposed on imported goods, and their primary purpose is to protect domestic industries by making foreign products more expensive. However, the ripple effects of tariffs can be far-reaching, affecting supply chains, production costs, and ultimately, product profitability.
Why Product-Level Analysis Matters
Many companies track production costs at a high level, focusing on overall material, labor, and overhead expenses. While this approach provides a general sense of profitability, it often overlooks the nuances of individual product costs. Without detailed product-level analysis, companies may miss critical insights into how tariffs are impacting specific items.
Steps to Assess Product Profitability
- Analyze Cost Components: Break down the existing cost components of each product, including raw materials, labor, overhead, and other product related costs (such as outbound freight). Then layer on the additional cost of the new tariffs and this detailed analysis will help you understand the true cost of your products.
- Evaluate Pricing Strategies: Assess whether your current pricing strategies are sufficient to cover the increased costs. Consider whether price adjustments are necessary to maintain profitability without losing competitive edge.
- Consider Cost Cutting Strategies: If adjusting prices, without causing a net revenue decrease, is not an option, consider whether there are other ways to reduce costs. This can include analyzing both internal spend such as labor costs as well as external vendor spend to find savings that you may not have needed prior to the new tariffs.
- Optimize Your Product and Customer Mix: You may identify that there are certain products that do not produce the profitability you need. It is important to understand whether it is the cost or pricing driving the loss on those products, or both. There are a number of financial and non-financial variables to consider in this analysis but focusing on the right products and right customers may help to absorb the additional costs of the new tariffs 2025.
Navigating Business Challenges with New Tariffs 2025
The new tariffs 2025 present both challenges and opportunities for businesses. By conducting thorough product-level analysis, companies can better understand the impact of tariffs on their profitability and make strategic decisions to mitigate risks.
At Wiss, we have the expertise and tools to help you with analyzing your product profitability. We are committed to helping our clients navigate these complexities and achieve sustainable growth. Talk with our team today for more information.
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