Navigating tariffs: How SMBs can protect margins in a shifting market

Tariffs have become an unpredictable force for SMBs, with new duties being introduced, delayed, adjusted, and countered by other nations. The US has rolled out fresh tariffs on imports from Canada, Mexico, and China, while also expanding Section 232 tariffs on steel and aluminum. Meanwhile, Canada, China, and Mexico have responded with their own retaliatory measures, escalating trade tensions even further.

This constant back-and-forth creates uncertainty for businesses that rely on stable supply chains and predictable costs. If there’s one lesson from these developments, it’s that agility is key. SMBs must be ready to adapt — whether by reassessing suppliers, refining pricing strategies, or optimizing inventory management.

In this post, we’ll break down the impact of these changes, highlight industry-specific trends, and provide actionable strategies to help SMBs navigate the shifting landscape while protecting their margins.

The current tariff landscape

For SMBs, tariffs aren’t just another expense — they can disrupt supply chains, squeeze profit margins, and create unexpected financial stress. Businesses are responding to tariff uncertainty in different ways.

Many have stockpiled inventory to avoid future cost increases, while others are reassessing supplier relationships to find more cost-effective sourcing options. Some businesses are also adjusting pricing strategies to maintain profitability while staying competitive.

While these actions provide temporary relief, they aren’t long-term solutions. SMBs must proactively plan and optimize their inventory and financial strategies to stay ahead.

Key trends across industries

Each industry is experiencing tariff-related cost increases differently. Here’s what we’ve observed from businesses using Katana:

• Cosmetics and pharmaceuticals — Costs rose a dramatic 103% from Q3 2024 to Q4, yet stock levels remained unseasonably low, signaling caution.
• Raw materials (steel, timber, aluminum) — Significant inventory buildup, with some companies quadrupling their usual stock to hedge against future tariffs.
• Fashion and accessories — Rising costs throughout 2024, but declining average order values make price adjustments challenging.
• Food and beverage — Profit margins continue to shrink as businesses struggle to pass on cost increases to consumers.
• Machinery and automotive parts — Massive inventory purchases in Q4 2024, effectively buying their 2025 stock in advance to avoid tariff impacts.
• Electronics and appliances — The only industry that successfully increased profit margins by passing costs to customers.

Understanding these trends can help businesses benchmark their approach and develop strategies tailored to their industry’s specific challenges.

5 ways how SMBs can navigate tariff challenges

Successfully navigating tariffs requires a strategic approach. Businesses must assess risks, optimize supplier relationships, and refine pricing strategies to stay profitable. Below are key steps to help SMBs manage and mitigate the impact of tariffs.

1. Assess your exposure

The first step in managing tariff uncertainty is understanding its impact on your business. Take a close look at your costs and supply chain:

• Analyze your supplier base and determine if tariffs affect their pricing.
• Look beyond direct materials — components, packaging, and logistics may also be impacted.
• Use inventory management software like Katana to track procurement costs and model future pricing scenarios.

2. Strategic supplier and product adjustments

Diversification and adaptability are key to mitigating tariff risks. Businesses should consider:

• Diversifying suppliers to find alternatives in non-tariff regions.
• Exploring substitute materials that offer cost savings without sacrificing quality.
• Renegotiating contracts with existing suppliers to lock in lower prices before further tariff increases.

3. Dynamic pricing strategies

With fluctuating costs, pricing strategies need to be flexible. Companies can:

• Implement differentiated pricing models based on customer segments and sales channels.
• Use cost-based pricing to adjust prices dynamically in response to rising procurement costs.
• Experiment with bundling or tiered pricing to offset costs without losing customers.

4. Inventory and demand planning

Maintaining the right stock levels can make a huge difference in managing tariff-related risks. Businesses should:

• Maintain a balanced stock level to avoid excessive carrying costs or stockouts.
• Use forecasting tools to anticipate demand shifts and make informed purchasing decisions.
• Factor in lead times and adjust reorder points accordingly.

5. Financial and accounting adjustments

Proper financial planning helps businesses absorb unexpected tariff-related expenses. Key steps include:

• Using a moving average cost (MAC) methodology to spread tariff-related cost increases over time.
• Working closely with your finance team or accountant to reassess pricing models and optimize profit margins.

Leveraging technology to stay competitive

Technology is a key enabler for SMBs looking to streamline operations and improve decision-making. Businesses that integrate inventory management solutions can gain a real-time view of their supply chain, helping them respond quickly to cost fluctuations and demand shifts.

By adopting digital tools, businesses can track real-time stock levels across multiple sales channels, analyze cost structures to make data-driven pricing adjustments, and automate reordering to prevent stockouts while avoiding costly overstocking.

Staying agile with Katana

Staying ahead of tariff changes requires a system that provides real-time insights and flexibility. Katana offers an inventory management solution that helps businesses track costs, adjust strategies, and remain competitive despite ongoing trade uncertainties.

Besides tracking your inventory and your production workflows, Katana also lets you:

• Track landed costs with real-time data — See the true cost of goods by factoring in fluctuating tariffs, ensuring you’re making profitable decisions.
• Streamline supplier management — Manage multiple suppliers effortlessly and compare costs to find the best sourcing options.
• Automate cost adjustments — Apply pricing changes instantly as new tariffs are introduced, preventing margin erosion.
• Optimize inventory planning — Use demand forecasting and scenario modeling to anticipate supply chain disruptions and stock smartly.
• Integrate with accounting software — Sync your cost data with platforms like QuickBooks and Xero for accurate financial tracking and reporting.

SMBs that can quickly adapt to new trade policies, pivot suppliers, and recalibrate pricing strategies will be best positioned to weather the storm. By using a centralized platform like Katana, businesses gain the agility needed to stay competitive, no matter what the next round of tariffs may bring. Book a demo now to see how else Katana can help you stay agile and protect your profits.

Henry Kivimaa

Content Manager

Henry is an avid traveler with a passion for writing. Having lived most of his adult life abroad, he’s amassed a variety of experiences from many different fields. From ForEx trading to compliance to mobile engineering to demolition, he’s definitely not afraid to test out new things.