How to Manage a 25% Tariff & Keep Your Canadian Business Succeeding

Facing a 25% tariff on goods can significantly impact your business’s profitability. However, with strategic planning and smart financial management, it’s possible to minimize the impact and maintain healthy profit margins. Here’s how Canadian business owners can effectively break down and manage a 25% tariff to stay in the black.

1. Understand the True Cost of the Tariff

Start by calculating the actual cost impact of the 25% tariff on each product. For example:

• Product Cost Before Tariff: $100
• Tariff Applied (25%): $25
• Total Landed Cost: $125

This breakdown gives you clarity on how much the tariff affects your pricing and profit margins.

2. Reassess Your Pricing Strategy

Once you understand the new cost structure, consider adjusting your prices to account for the tariff increase. Options include:

• Partial Pass-Through: Increase prices slightly to absorb some of the tariff while keeping competitive pricing.
• Full Pass-Through: Adjust prices fully to cover the tariff, ensuring you maintain profitability.
• Bundling Products: Combine products in a bundle to offer better value while offsetting the tariff cost.
• Introduce Premium Options: Offer higher-end or premium versions of products with better margins.
• Implement Tiered Pricing: Create multiple price points to cater to different customer segments.
• Introduce Subscription Models: Offer product subscription services to ensure consistent sales and spread costs over time.
• Incentivize Bulk Purchases: Provide discounts for larger orders to encourage bigger sales and improve cash flow.
• Loyalty Programs: Implement programs that offer discounts or rewards for repeat purchases to drive consistent revenue.
• Dynamic Pricing: Use dynamic pricing models that adjust based on demand, seasonality, and market conditions.

3. Optimize Your Supply Chain

Evaluate your supply chain for cost-saving opportunities:

• Source from Alternative Countries: Look for suppliers in countries with lower or no tariffs.
• Negotiate with Suppliers: Renegotiate contracts to share the tariff burden or secure better rates.
• Bulk Purchasing: Increase order quantities to benefit from economies of scale and reduce per-unit costs.
• Use Local Suppliers: Explore sourcing options within Canada to avoid import tariffs.

4. Apply for Trade Programs & Duty Drawbacks

Check if your goods qualify for any trade programs that could reduce tariff costs:

• Free Trade Agreements (FTAs): Utilize agreements like CUSMA to minimize tariffs.
• Duty Drawbacks: If you import goods and later export them, apply for a refund on paid tariffs.
• Tariff Classification Review: Ensure your products are correctly classified, as incorrect classifications could lead to higher tariffs.

5. Reduce Operational Costs

Offset increased costs by reducing operational expenses in other areas:

• Review Overhead Expenses: Cut non-essential expenses where possible.
• Improve Operational Efficiency: Streamline processes to save time and reduce waste.
• Automate Where Possible: Use technology to automate tasks and reduce manual labor costs.

6. Focus on Value Proposition & Branding

If raising prices is necessary, ensure customers understand the value of your products:

• Highlight Product Quality: Emphasize why your products are worth the investment.
• Educate Customers: Share information about how tariffs are impacting costs transparently.
• Enhance Branding: Strengthen your brand’s value to create customer loyalty.

7. Explore Alternative Revenue Streams

Diversifying income sources can offset tariff costs:

• Introduce New Product Lines: Consider products not impacted by tariffs.
• Expand to New Markets: Explore export opportunities in countries with lower trade barriers.
• Offer Services: Add consulting or support services related to your products.

8. Seek Professional Guidance

Consult with experts to ensure you’re leveraging every available opportunity:

• Customs Brokers: They can help ensure correct tariff classifications and identify cost-saving opportunities.
• Trade Advisors: Provide insights into market trends and trade agreement benefits.
• Accountants: Assist in managing financial impacts and identifying tax efficiencies.

Real-Life Examples of Canadian Companies Managing Tariffs

• P&H Milling Group: Faced with international tariffs on grain exports, they diversified their client base by focusing on domestic markets and high-margin specialty products. Strategic partnerships with local agricultural groups helped reduce logistical costs.
• McCain Foods: To address tariffs on frozen food exports, McCain Foods expanded its production facilities in tariff-free regions and diversified its product lines to mitigate trade barrier risks.
• Sleeman Breweries: This brewery increased local sourcing for malt and hops to reduce costs and strengthened its brand appeal through local partnerships.
• Napoleon Fireplaces: Faced with steel tariffs, they diversified suppliers, adopted alternative materials, and invested in operational efficiencies to maintain profitability.
• Linamar Corporation: As a major auto parts manufacturer impacted by tariffs, Linamar optimized its global supply chain by relocating operations to regions with lower tariff impacts and expanded its operations in Europe and Asia to diversify risks.

These examples highlight how strategic changes can help businesses overcome tariff challenges while maintaining profitability.

How Ontario Business Central Can Support

Ontario Business Central understands the pressures Canadian entrepreneurs face when dealing with complex trade and tariff challenges. We recognize that navigating these changes can be overwhelming, and we are here to offer guidance and support.

• Information & Resources: We have completed another article giving you easy access to resources that may assist you as THE CANADIAN BUSINESS OWNER’S GUIDE TO MANAGING TARIFFS that provides a long list of resources in one place to assist you and your business.
• Encouragement & Support: As a company deeply rooted in supporting Canadian businesses, we stand by entrepreneurs during uncertain times. We are committed to offering guidance and encouragement as you navigate these new challenges.
• Community Connection: We encourage businesses to connect with others in their industry, sharing strategies and insights that can help ease the burden of tariff impacts.
• Government Support:   The federal government offers support to workers and businesses affected by the new tariffs.

A 25% tariff can be challenging, but with the right strategies, you can manage its impact and keep your business profitable. By reassessing pricing, optimizing supply chains, reducing operational costs, and exploring new opportunities, it’s possible to stay in the black.

Our commitment is to be a helpful and understanding resource for entrepreneurs looking for ways to stay resilient and adapt during these times. Whether you’re just starting your journey or adjusting an existing business, you’re not alone.

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Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. It is always recommended, when you have legal or accounting questions that you speak to a qualified professional.