How are Tariffs Impacting Your Profits? The Tariff Impact Calculator Explained

0:39 Where to put your numbers and definitions

Okay, so here's the tariff impact calculator. You'll notice there are several sheets down here at the bottom. I'm starting on the basic tariff impact calculator on this page. You'll want to put your values in these yellow fields. And the values that you put in, you want to make sure those are for the last 12 months.

So I'm going to quickly walk through some definitions just so you know exactly what's going in which space right here.

1:10

So let's jump over to this page and we'll review these.

So revenue obviously is your income from your sales after your discounts, returns, refunds, all of that.

Your customs value is what's used to calculate the tariff. It includes your product costs, your insurance, and international freight. Now, I know a lot of you don't break this down in your profit and loss, so you can either estimate this or, worst case scenario, you could just use your product cost of goods sold. I say this because other COGS right here usually is a pretty small number. This is typically just the cost of bringing the product from the port to the warehouse. Maybe there's some additional packaging fees, or anything that's bought on a non-tariff basis.

Your increased tariff costs will be calculated for you. Your total cost of goods sold is going to be the customs value plus your other COGS plus your increased tariff costs. Gross profit is revenue minus total cost of goods sold.

2:22 Sales expenses versus non-sales expenses

Now, something I want you to remember, best practice for cost of goods sold is your landed product cost. This should only include your products and the cost to get it to your warehouse. I do see some people who want to put sales expenses in cost of goods sold, and technically that's not accurate. Those costs will fall under sales expenses here.

So sales expenses typically are gonna include your merchant fees, your fulfillment, and some people put advertising here as well. Every other expense will be considered a non-sales expense. So think payroll, software, et cetera. Your total expenses is then the sum of the sales and non-sales expenses.

Your net operating income is your gross margin minus your total expenses. And then your other income and expenses is where you're going to put your financial gains or losses. So think interest income, interest expenses, et cetera. And then finally, your net income will be your final profit or loss after all your expenses.

3:36 The basic calculator and break even

So that should help you as you move over to the basic calculator. Be sure and grab these numbers for the past 12 months from your profit and loss and input them here.

So you'll see I've input some random numbers simply to show you how the calculator works. After you've entered the numbers from your P&L, be sure to enter the increased tariff rate that you anticipate up here in cell D5.

You'll see on the basic calculator that scenario one, which is right here, is the result of the tariffs without any kind of price increase. You can see right here what the tariff costs are. You can see how the total cost of goods sold has increased. You can see how gross profit has decreased. And you can see how the net income has dropped as well.

4:36

From here, if you scroll down just a bit, you'll see this break even analysis. So to compensate for increased tariffs, these are some options to get you back to the net income that you have right here in cell D26.

So in this one, one strategy would be to reduce your non-sales expenses by $212,000. Another one would be to increase your revenue by $355,000. So this gives you some information for what you could potentially do up here if you were trying to not increase your prices at all.

5:18 The advanced calculator and price elasticity

Now, if we jump to the advanced calculator here, you're going to see that scenario one is really just a copy and paste from that basic calculator, so that you can see it all in one place.

Scenario two gives us the option to do a price increase along with considering price elasticity. So this is a concept that says if we raise prices, the volume of demand is going to decrease.

6:05

So if we jump to this elasticity page, you can see this. So you may want to ask yourself, how elastic is the product that you're selling? So I would suggest that the more discretionary your product is, the more elastic it is. And then on the other side of the coin, if you're selling something people can't live without, then your elasticity is lower.

So one example of this would be if you're in the apparel space. I would consider apparel to be more elastic. So as the price goes up, the demand will go down.

Now, if you're not sure about this, one thing you can do is do some price testing to figure this out. You could also look here in this space where we've given our best guess based on what we know of the market of where we think your elasticity would be depending on what you're selling.

6:53 Scenarios two, three, and four

So let's go back to this advanced calculator. So scenario two allows you to put in a percentage to increase your price. So let's say we want to increase it by 15%, and it keeps your price elasticity at negative one for scenario two.

7:42

So you can see how this is going to shake out. If you increase your price by 15% and your elasticity is at about a negative one, you'll see that now your tariff costs have gone down a bit, your COGS have gone down a bit, your profit has also gone down just a bit. And now you'll see down here that your net income is lower than it was in scenario one.

In scenario three, it allows you to change your elasticity of your product. So maybe you have something that has low elasticity. Maybe it's something that people are gonna need a lot of. So we're gonna say that's even lower than 1%. Maybe you'll say it's at 0.5. And maybe you only need to increase your price 10%, we'll say.

8:27

So we can make those changes and see how that shakes out on the profit and loss as well. With this scenario, we can see versus scenario two that our net operating income has increased and our net income has increased as well.

And then with scenario four, this is where you can also calculate any cost cutting measures. So maybe we want to cut our costs by 15%, and then we want to, depending on the tariff rate, maybe the tariff rate's only 10%. So we can make those changes as well.

This advanced calculator really gives you the opportunity to play with these numbers in order to make some really valuable decisions moving forward with these tariffs.

9:02 Income ratios and distributing the impact

Okay, one last thing you'll want to consider entering is the last 12 months order count. So I'm going to change this to 50,000. So I'm saying that in the last 12 months, I've sold 50,000 orders, and this you can enter here in cell D10.

So if you input that number, then you can go to this page, the calculator income ratios. And on this page, you can see the percent of income allocated to each of these accounts. But more importantly, you can see how your net profit margin is going to perform based on the scenarios that are on this advanced calculator. So this will give you some really valuable information moving forward, so that you know exactly what decisions you want to make and how those decisions will affect your net profit margin.

9:59

One last thing I'd love for you to consider is the importance of distributing the financial impact of the tariffs.

So a few things that I would suggest you consider is, maybe start by talking to your manufacturer and see if there's any way they can help with any of the pricing. You could also, and probably will have to, increase your price for your customers. Cutting costs is another way to distribute the financial impact. And lastly, if you're a wholesaler, you could consider passing some of the cost increase to those retailers as well.

Ultimately, our hope is that you can use this tariff impact calculator to make better decisions and strategize how best to handle the tariffs for your online business moving forward.

Download the updated tariff impact calculator today. It's free and it will give you clarity around your business in order to make informed decisions. You can find the link in the description below. You can also reach out to our team for individualized help at ledgergurus.com.

Thanks for watching. If this video helped, please like it and subscribe to our channel. Also, I'd love to hear from you in the comments. What about your numbers surprised you the most? I'll catch you on the next video.