Supplier price increase: the margin hit and the new price

A supplier raises your unit cost by 8 percent. On a $50.00 item that cost $25.00, the margin falls from 50.0% to 46.0%, and profit per unit falls from $25.00 to $23.00. To keep the 50.0% margin you need a price of $54.00, up 8.0%. To keep the $25.00 profit per unit you need $52.00, up 4.0%.

Which of the two you choose is a business decision. The arithmetic below lets you make it with real numbers, and the last sections cover how to catch the increase before it has run through three orders of stock and a quarter of sales.

Short version: do the sums first.

The margin hit on one product#

Margin is the share of the price you keep after cost: (price minus cost) divided by price. Shopify's help center uses the same formula for its profit reports, with net sales where we write price (Shopify help: profit reports, checked 15 Oct 2026). Take a product that sells for $50.00 and costs $25.00 from the supplier. The supplier writes to say prices rise 8 percent.

New cost = 25.00 x 1.08 = 27.00
Margin before = (50.00 - 25.00) / 50.00 = 25.00 / 50.00 = 50.0%
Margin after  = (50.00 - 27.00) / 50.00 = 23.00 / 50.00 = 46.0%

A cost rise of $2.00 is a profit drop of $2.00. Nothing softens it. Because profit here happens to equal cost, profit also falls by 8%, which is $2.00 out of $25.00, but that match is a coincidence of the 50% margin and the next section shows it breaking.

The thinner the margin, the harder the hit#

The same 8 percent lands differently on different products. Compare three, all with the same 8 percent supplier rise.

The last row is the dangerous one. A $35.00 cost becomes $37.80, which leaves $12.20 of profit where $15.00 used to be. Nearly a fifth of the profit is gone from a rise that sounded small on the supplier's letter, and the shop owner who only reads the headline percentage will not see it until the month-end numbers come in. Look at these products first.

Two prices that fix it#

Two targets. Two prices.

Same margin percentage. Price = new cost divided by (1 minus the margin you want).

27.00 / (1 - 0.50) = 27.00 / 0.50 = 54.00
Change = 54.00 / 50.00 = 1.08, so up 8.0%

The price rises by the same 8% as the cost. That holds at any margin: if both sides of the fraction grow by 8%, the ratio stays put.

Same dollars of profit per unit. Price = old price plus the cost increase in dollars.

50.00 + (27.00 - 25.00) = 52.00
Change = 52.00 / 50.00 = 1.04, so up 4.0%
Margin = (52.00 - 27.00) / 52.00 = 25.00 / 52.00 = 48.1%

The gap between the two targets depends on your margin. For the three products above:

Check the last row: $37.80 minus $35.00 is $2.80, and $2.80 on a $50.00 price is 5.6%.

What each price asks of your sales#

A higher price may sell fewer units, and we cannot tell you by how much, because your customers, your competitors and your product decide that and none of them is in our data. We can show the volume each choice can survive. Say you sell 1,000 units a month of the $50.00 product, so profit is 1,000 x $25.00 = $25,000.

Leaving the price alone means selling 8.7% more units just to stand still, and an unchanged price does nothing to bring them in. The $54.00 price can lose 74 units a month and still earn what you earned before. The $52.00 price has no room: any lost sale costs you profit.

The hit arrives with the next order, not today#

An 8 percent rise does not touch stock you already own, so the full effect on your margin builds up over several weeks as old units sell through and new ones take their place on the shelf, and for a fast seller that can be a matter of days. Say you hold 300 units bought at $25.00, and your next order is 500 units at $27.00.

Extra cost on the new order = 500 x (27.00 - 25.00) = 500 x 2.00 = 1,000.00

Those 300 old units still earn 50.0% at $50.00. Which margin you see on the shelf depends on your cost method. With first in, first out, the first 300 units sell at a 50.0% margin and the next 500 at 46.0%. With a weighted average, all 800 units carry one blended cost:

(300 x 25.00 + 500 x 27.00) / 800 = (7,500.00 + 13,500.00) / 800 = 21,000.00 / 800 = 26.25
Margin = (50.00 - 26.25) / 50.00 = 23.75 / 50.00 = 47.5%

Both methods spend the same $21,000.00 on the 800 units. They differ in when the margin drops. Our article on weighted average cost and FIFO walks through both. Confirm with your accountant which one applies to your business.

A common mistake is moving too early. A shop gets the new invoice, types $27.00 into the Cost per item field that day, and the profit report starts charging $27.00 to units that cost $25.00. Shopify's help center calls that field static: reports use the cost recorded at the time of the sale, so what you type today changes every sale from today. Decide when the new cost starts, and write the date down.

A monthly check that catches the rise#

Suppliers do not always announce an increase. Sometimes the first sign is a number on an invoice, three weeks after you placed the order and after the stock is already on the shelf. A monthly check of about 20 minutes catches it early.

1. List every purchase order you sent or received this month.
2. For each line, find the previous order for the same item from the same supplier. Compare the supplier's unit price, not the landed cost, or freight will look like a price rise.
3. Mark each line where the price rose 5% or more. Multiply the rise per unit by the units ordered to get the money.
4. Compare each invoice total with its order total. A gap is a rise, a fee or a typo, and each needs a different reply.
5. For every marked item, work out the two prices from above and write down your choice.

Order sizes matter. A supplier may charge less per unit at 1,000 than at 200. If this order is less than half the size of the last one and the price rose, ask about a quantity break before you call it an increase.

When not to pass it on#

Sometimes the answer is no.

If the item is one customers compare across shops, a higher price may send them to a rival, and you lose the sale and the basket that came with it. If it brings people in for other products, a thinner margin on it may be a fair price for traffic. If the rise is a short one, absorbing it for a few weeks is cheaper than changing prices twice. Your call.

Do the arithmetic first, though. The cost of waiting is the profit lost per unit, times the units sold in the meantime. For the $50.00 product that is $2.00 per unit, and at 1,000 units a month it is $2,000 a month.

Ask your supplier whether a larger order or faster payment changes the price. It costs one email. To compare orders you need each one's prices on record, which is the receiving step on our purchase orders page.