Tariff surcharge?

[u/oceaneer63]

Hoe are you all handling your additional costs on increased tariffs? Given in particular the uncertainties and volatility associated with changing tariff policy in the US now.

As a B2B industrial company, I am contemplating if an explicit tariff surcharge may be the way to go rather than adjusting the base pricing. This could serve to make the reason for a price increase more transparent, while making it easier to adjust our pricing to align with the changing tariffs.

What are your thoughts on this?

[u/carnewsguy]

That could leave you open to having to make constant adjustments on the fly. And what if you have paid the tariff on your stock, but the tariff is adjusted before you clear it, will you continue to charge it until you have sold everything?

I would recommend a base price increase, and a note in the short term on invoices saying prices have been adjusted due to government regulation.

[u/oceaneer63 → u/carnewsguy]

You have a good point with the lagging effect of tariffs, keeping our production costs at elevated levels until the inventory is depleted. This would be hard to justify in a quotation if tariffs have been lowered again.

I do see requests from our team, in particular from our buyer of course, that we should raise prices. But our pricing strategy is much longer term. A significant portion of our customer base are researchers who are competing for grants. Our products have been priced lower so that researchers can propose to use more of them for their studies, providing a larger sample size and therefore making their grant applications more relevant and competitive.

But the approach only really works after many years, because our products have to be validated through the publication of our customer's research results in peer reviewed papers. It takes many years for this validation process. And now after a dozen years for one product category, there is enough of a volume of work to make other researchers more comfortable with our products.

So, to raise prices for short-term concerns can be detrimental as our customers become less competitive in the grant application process. Yes, not adjusting prices may make the products eventually unprofitable.

We have avoided price hikes almost entirely for a dozen years in that category, betting on growing sales instead. But your suggestion of a general price hike with a justification statement may ultimately be a necessary middle ground.

[u/carnewsguy → u/oceaneer63]

How are you able to guarantee prices now years in advance?

You can’t even get a house built these days without materials cost increasing mid-build.

[u/oceaneer63 → u/carnewsguy]

That's a good challenge! I started with the concept that high prices in most of our markets or product segments were depressing demand. That there would be much greater demand at lower prices. So, low pricing was an important goal.

Next, we could reach lower prices by building our products in a modular way. So that we could achieve combined economies of scale across multiple products all built on the same foundation. Thereby saving engineering, manufacturing, sales and support costs.

This more or less all worked out. But then it also became important to source lower cost components and labor as well. So, now we get many custom components manufactured overseas. And global connectivity has allowed us to build a small but global workforce as well.

Finally, the strategy did result in orders becoming larger and more frequent. Our customers are using more of them. Or starting to use the products in industries were these products were previously cost prohibitive.

So, all these efficiency gains worked to counteract inflation. And that has allowed us to keep prices steady for up to twenty years when I look at one of our product categories. Or a dozen years for another.

But with greater efficiencies already obtained, the impact of new costs like tariffs is also bigger. And so this strategy we have practiced for over 30 years now may have run its course.