Tariffs Changed Your Costs: Surcharge, Reprice, or Absorb?

Tariffs Changed Your Costs: Surcharge, Reprice, or Absorb?

Tariffs and the end of de minimis changed landed costs for a huge share of ecommerce catalogs. Surveys through 2025 reported that a majority of retailers raised prices to offset them — often sitewide, often by gut, often while quietly trimming promos.

There's a better way: treat it as a pass-through decision with real math, tested by segment.

The landed-cost equation

Landed cost per unit is roughly:

Landed = (FOB + freight + insurance) × (1 + duty rate) + flat fees

A tariff change flows straight through it. On a $23 dutiable base, moving duty from 10% → 25% adds about $3.45/unit before flat brokerage and handling.

The de minimis change hurt a different model: a sub-$800 direct-to-consumer parcel that used to enter duty-free now pays duty plus per-parcel brokerage. On a small parcel, the flat fee alone can exceed the unit margin — that's a per-order problem, not a percentage one.

Three options, honestly compared

1. Absorb. Keep prices, eat the margin. Works when demand is highly elastic, the duty touches few SKUs, or fee revenue elsewhere offsets it. Test: does (old price − new landed) × current volume beat any repriced scenario?

2. Reprice. Raise the catalog or specific SKUs. Two flavors matter. Hold-dollar margin: raise by exactly the landed-cost increase. Hold-rate margin: raise to new landed ÷ (1 − margin rate), which is a bigger move. The rate-hold is a ceiling, not a mandate — above some elasticity, absorbing wins on total contribution. Model demand response; don't assume it.

3. Surcharge. Add a transparent tariff line at checkout. The emerging compromise: base price stays, duty shows as its own line. It preserves price perception, keeps loyalty/promo architecture intact, and often tests better for sentiment than a stealthy MSRP hike. The tradeoff is cart friction — measure it against a control.

Worked comparison

A $50 SKU, 50% margin. Duty rise adds $3 landed.

• Absorb: contribution falls from $25 → $22.
• Hold-dollar: price → $53, contribution holds at $25, but demand drops by whatever elasticity dictates.
• Surcharge: price stays $50; $3 duty line added. If it converts at the same rate as absorb, contribution = $25 minus the friction cost. If cart completion drops 1pp, that friction cost is roughly 0.01 × traffic × $22 — often smaller than the $3 × units you'd otherwise absorb.

Test the friction number rather than guessing it.

What not to do

• Sitewide +X% by default. Duty differs by origin, HTS, and category. A flat increase overcharges low-duty SKUs and undercharges high-duty ones. Pass through at category/SKU level.
• Discount on the pre-duty subtotal. If % off applies while duty recomputes on the discounted value, you've changed two variables. Lock the logic: discount the merchandise, compute duty on the correct base, cap stacked combinations.
• Ignore the flat fee. A per-parcel fee of $8–15 destroys margins on small baskets. Consider a minimum-AOV or shipping-fee offset for affected routes.

How to test it

Don't reprice once. Run it like any offer decision:

• Split by new vs. returning × channel, so price sensitivity doesn't average away.
• Test surcharge vs. MSRP move on a slice of traffic.
• Watch conversion and contribution per session — the repriced version can win on revenue and lose on profit.

The takeaway

Tariffs are a cost change, not a discount question — but they interact with every discount you run. Get the landed math right first, then let promos adjust from the new base.

Surcharge what you must show, reprice what demand tolerates, absorb what the margin allows — and test which one the customer actually accepts.