The letter arrives with regret: due to rising costs, your supplier is increasing prices. In the current environment - with surveys showing a large majority of businesses facing higher supply costs from tariffs, materials and wages, and nearly half reporting compressed margins as a result - this letter is not an event but a season. What matters is what happens next, and in a striking number of small businesses the honest answer is: nothing. The increase is grumbled about and paid, prices to customers stay where they were, and the difference comes silently out of the margin. That is not a strategy; it is the default that operates when no decision is made. A supplier cost shock in fact presents exactly three options - absorb it, pass it on, or re-source - and the only universally bad outcome is failing to consciously choose among them.
Absorbing the increase is sometimes right and always dangerous, because it is invisible. It is right when the increase is small and genuinely temporary, when a price move would cost more in customer goodwill than it recovers, or when you have decided - deliberately, with numbers - to hold price as a competitive weapon while rivals raise theirs. It is dangerous because absorption compounds quietly: three modest supplier increases absorbed over two years can consume most of a thin margin without any single moment feeling like a crisis. The test is arithmetic, not mood. Recalculate what the affected product or service actually costs to deliver at the new input prices, and see what remains of the margin. A business that does not do this sum is not choosing to absorb; it is discovering, much later and via its bank balance, that it did.
Passing the increase on is the option businesses fear most and overestimate the danger of. Customers have spent several years watching prices rise everywhere; a measured increase, communicated plainly and tied to real input costs, is understood far more readily than owners expect - and, as covered here before, the customers most likely to leave over it are often the least profitable ones. The practical points are about execution: raise by enough to actually solve the problem rather than nibbling twice, give notice where relationships warrant it, and never apologise your way into framing the business as embarrassed to charge what things cost. Re-sourcing, the third option, is the one that takes effort: testing whether the increase is the market moving or just your supplier, quoting alternatives, and discovering in the process how strong your negotiating position actually is. Even when you stay put, a credible alternative quote changes the next conversation - and the moment to develop alternatives is before you are desperate, since a business with one possible supplier has a partner with pricing power and no reason not to use it.
The deeper practice is to treat input costs as something monitored rather than experienced. Know which handful of inputs dominate your cost of delivering, watch them, and set a threshold - a percentage move that automatically triggers the three-option review rather than leaving it to whenever the discomfort becomes undeniable. Businesses that operate this way respond to cost shocks in weeks, with pricing and sourcing decisions made on numbers; businesses that do not respond in years, with a slow margin bleed followed by an abrupt, oversized price correction that customers experience as far more shocking than the gradual adjustments would have been. The supplier's letter is not the problem. The problem is a business where the letter changes nothing until the day it has to change everything.