SalesGlobe Signals is about seeing a bigger, macro view on growth and taking actions that will help you reach your growth aspirations. This month let's take a reading on a few signals that may be impacting your customers, how you create value, and how you set expectations for your organization– tariffs, cost passthrough in prices, and what it may mean for sales quotas.

With this broader, macro view, our focus is on helping executives answer two questions for their businesses:

1. What Are the Market Signals? Indicators you might watch for your business and what they say about what may be ahead.
2. What Does This Mean for Profitable Revenue Growth? Based on the signals, how you may think about growth for your business and the actions you may consider.

Tariffs– Big Expectations

What Are the Market Signals?
One economic driver in the spotlight now is, of course, tariffs. Uncertainty and speculation abound as organizations guess at what might happen and what the effects might be. Some are taking action, and many are holding steady until they get better visibility on the course ahead. Let's add a few points to the radar screen to give you some additional insight to inform your course on revenue growth.

Unit costs expectations are elevated across industries in anticipation of the effects of tariffs. Let's look at the Federal Reserve's 6th District Business Inflation Expectations Panel (BIE), of which SalesGlobe is a contributing member1. The biggest spikes in cost expectations over the year ahead are for Manufacturing, Retail, and Wholesale. Each group sees a significant increase in unit costs predicting approximately a 3% rise from between 2% and 2.5% a year ago.

Transportation and Warehousing also see a spike, although not as extreme as its supply chain neighbors (Manufacturing, Retail, and Wholesale) predicting just over a 3% increase rising from just below 3% a year prior. Some of this narrower range in expectations between last year and this year may be due to the services nature of Transportation and Warehousing, drawing more upon labor and less impacted by tariffs than organizations requiring heavier materials inputs.

For industries that include Services, Healthcare, Hospitality, and Leisure, unit cost increase expectations are nominal over prior year.

Bracing for Impact. Are expectations greater than reality? By comparison, when we look at actual monthly cost increases compared with year-ahead projections, we see a contrast. Manufacturing companies, despite their spike in year-ahead unit cost concerns (light green line overlayed from the prior unit cost expectations chart) report actual costs lower than prior month and about even with prior year (dark green line).

Retail and Wholesale also show a spike in year-ahead unit cost concerns (light green line overlayed from the prior unit cost expectations chart) but do appear to already see increased costs over prior month (dark green line).

Like Manufacturing, Transportation and Warehousing anticipate a unit cost increase a year out but report lower current month-over-month actual costs. Across the board, concerns about anticipated unit costs increases, largely due to tariffs, may be ahead of actual cost increases. Companies may be preparing for the anticipated tariff storm through shifts in supply chain, automation, efficiency, and pricing.

Underestimating the Impact? As we look at these actual and anticipated unit cost changes, for context, it's important to note that over the past decade, the average annual increase in the U.S. Producer Price Index (PPI), has been approximately 2.5% to 3.0%. So, these actual and anticipated costs increases fall within the historical ten-year range.

Who Will Pass Through Costs in Prices? Speaking of the price index, we hear a lot of talk about how much companies may pass through price increases to their customers. The challenge with most of that talk is that it's too general and leaves us little to work with. Let's get specific about where it may happen and what actions we can take.

Price passthrough differs by goods-producing and services-producing firms. Companies that produce goods would have obvious cost increases from import tariffs because they may manufacture those products in other countries and import them into the United States or they may import components from other companies to embed into their U.S. manufactured products. But for firms that produce services, you may ask how they would be affected by tariffs on imported goods. The answer is that many services firms use imported physical goods or products within their services. For example, IT services firms may incorporate technology equipment into their offering, which could impact their overall costs and margins.

47% to 62%? That's a lot of passthrough! Let's look at two scenarios of cost increases due to tariffs. At a 10% cost increase, goods-producing firms say they'll pass through on average, 62% of that cost increase to customers. Services-producing firms say they'll pass through on average, about 49% of that increase. Under the scenario of a much larger, 25% cost increase, goods-producing firms absorb more of that increase and say they'll pass through about 55% of that increase. In the same scenario, services-producing firms say they'll hold the line and still pass through about 47% of that cost increase. Keep in mind though, that costs for goods are a smaller portion of total costs for services firms. So they likely would have less of a total margin impact that cost increases for goods-producing firms.

Size and sector matter. When we look at the cost increase scenarios by company size and industry, the responses become more meaningful. As cost increases rise, larger companies say they won't ease off on passthrough but will get more aggressive on price increases than their smaller counterparts. This may be because these larger companies have greater pricing power in their markets.

Who are these companies who will be so bold on passthrough? Going back to our observations on industry anticipation of rising prices, Retail and Wholesale say they'll pass the greatest amount of cost increases through price increases, ranging from 56% to 60%. Manufacturing is close behind saying they'll pass through 48% to 54% of cost increases through to their customers. Manufacturers also appear to be the driver behind the increased portions of passthrough as costs increase.

What Does This Mean for Profitable Revenue Growth?
These unit cost actuals, unit cost expectations, and anticipated price passthroughs give us a lot to assimilate. Let's simplify it in terms of what it might mean for your organization's profitable revenue growth.

Customers with current cost trends that are lower than future cost expectations. Unit cost expectations over the next year are higher than the current trend for Manufacturing and Transportation and Warehousing. Finance, Insurance, Real Estate, Business Services, Healthcare, Hospitality and Leisure also have elevated expectations one year out compared to their current trends which are stable or declining unit costs. For your customers in these groups, you may consider how to prepare them for those potential cost increases, assuming current tariff trade forces continue.

Customers with current cost trends that are increasing in line with future cost expectations. Retail and Wholesale are already experiencing unit cost increases on trend with their year-out projections. For your customers in these groups, you may think about how you can mobilize quickly to address the pressures they're already feeling as well as how you can create a 12-to-24-month plan.

Customers who plan to pass through significant portions of their cost increases. For these companies, they'll present higher prices to their end-users. Depending on the price elasticity of demand for their products or services, they may experience customer attrition to deferred purchases, substitute products, or defection to competitors with lower prices. These companies may have to pass through a large portion of cost increases because they have thin margins and can't absorb those increases. Or these companies may sell in markets where demand is inelastic (e.g., essentials their customers must buy. Think of that broken washing machine or car that must be fixed. Using a wash board or walking is not an acceptable option for most people.) For your customers in these groups, you may explore options for helping them strengthen their value propositions, increase their efficiency, or lower their costs with your products or services to help offset their price increases.

Customers who must absorb those cost increases in their margins. These companies may maintain their current prices or pass through less cost with a price increase. They may do this because demand for their products is price elastic (e.g., non-essentials or luxury items for which their end-users will find alternatives or wait on purchases. Think of that nice dinner out or that new set of golf clubs. Dinner at home and sticking it out with the old sticks will have to suffice.).

These companies will have to absorb those higher costs in their margins to keep revenues up. And to them, lower margin revenue is better than no revenue. For your customers in these groups, you may consider approaches to help them better understand the needs of their customer segments, protect their base, and grow their business. You may also look at methods to increase their efficiency, lower their costs with your products or services to help protect their margins.

Your organization, passthroughs, and quotas. From the perspective of your organization, you may think about how these anticipated costs increases and price passthroughs impact your internal operations and how you can improve your value proposition to your customers (above), increase your efficiency and improve your productivity.

When there are changes in market demand or market opportunity, sales quotas are often a question. Should we raise, lower, or leave quotas the same? Declining revenue or profit levels in your customer base could decrease their propensity to buy from your organization and put downward pressure on your sales organization's quota attainment.

Of course, all customers are not the same and some segments may become better opportunities for your organization. You may consider targeting your sales organization toward customer segments less impacted by tariff, cost, and price pressures and supporting with sales incentives to move your team in the right direction. You may also consider shifting their focus toward offers better aligned to those segments and, as described above, honing their value propositions to your target segments to help them better solve their challenges.

When it comes to tariff impacts on your business and their effect on quota attainment and potential quota adjustments, let's look at the puts and takes in your business under three broad scenarios:

Scenario 1. Elastic customer demand and increasing your prices. If your customer demand for your offers is elastic, as your prices increase, customers can delay or forego purchases or find substitutes. So, as your price increases by a certain percent, customer demand will decrease by a greater percent. In this situation, if you're passing along costs increases to your customers in the form of price increases, that may lower revenue, decrease quota attainment and reduce sales compensation earnings and increase the risk of sales turnover. If this plays out as a longer-term scenario, you may evaluate whether you should rethink your quotas to better align with adjusted market opportunity without increasing your compensation cost of sales.

Scenario 2. Elastic customer demand and maintaining your prices. If your customer demand for your offers is elastic, you may decide not to be aggressive in passing along price increases to maintain your sales levels. In this situation, taking on a good portion of those increased costs will lower your margins. While quota attainment may not be as heavily impacted as in the first scenario, your compensation cost vs. profit will increase if you're paying the same incentive levels for the same revenue at a lower margin. If this plays out as a longer-term scenario, you may consider shifting from revenue to profit or margin as a primary performance measure and setting quotas based on profitable market opportunity.

Scenario 3. Inelastic customer demand and increasing your prices. If your customer demand for your offers is inelastic (there are few substitutes and your customer still has to make the purchase), as your prices increase, customer demand decreases at a lower rate, netting out to a positive for your business. So, as your price increases by a certain percent, customer demand will decrease by a lesser percent. In this situation, your revenue may increase although your margins may stay consistent, net of the tariff passthrough. This could increase quota attainment and sales compensation earnings. Because a passthrough cost like tariffs carry no margin, your sales compensation cost vs. profit would increase putting you in a higher cost situation. If this plays out as a longer-term scenario, you may consider either shifting to profit or margin as a primary performance measure or re-setting revenue quotas based the inflated revenue expectations from cost passthroughs.

To set your direction, here are some questions you may ask your organization:

• How can you refine your customer segmentation by tariff impact to better identify those that are hurt by lower margins, due to higher costs they cannot pass through, those that are passing through a larger portion of their costs with increased prices, or other variations?
• Which of those tariff segments do your offers better align with and how can you evolve or shift your offer and value proposition to better align with their needs?
• Which of those customer segments need immediate help to address their challenges and which need a 12-to-24-month plan and how can you address each group?
• How can you better align your sales organization, sales channels, and sales process toward the segments with the greatest near-term and mid-term opportunity?
• Based on the price elasticity of demand for your organization's products or services, which scenario are you in and what tactics should you take with sales compensation and quotas to drive the organization in the right direction, set attainable goals that align with the organization's overall goals, and maintain or improve your compensation cost of sales?

Your Call to Action
Look at each of the signals we've discussed around unit costs, expectations, and tariff cost price passthroughs. Then, consider their impact from two perspectives: How will they affect your customers and their ability to grow? How will they affect your business? Get beyond current state and ask your team where they see the signals projecting ahead and what this means for your organization's profitable growth. Consider each of the questions I've asked, add your own, create a plan, and get into action. Questions for us? Email us at info@salesglobe.com or contact us at SalesGlobe.com.

¹Atlanta Fed Business Inflation Expectations Panel (BIE) 6th District, SalesGlobe Member. Approximately 700 Companies Across Industries. BIE results are highly correlated with other macro market surveys including the Federal Reserve Economic Data GDP Price Index, the Philadelphia Fed Survey of Professional Forecasters, and the University of Michigan Survey of Consumers. May 2025.

SalesGlobe is a revenue growth consulting and services firm focused on helping our clients reach their growth aspirations through better solution-development and operationalizing to get results. We specialize in helping Global 1000 companies solve their toughest growth challenges and helping them think in new ways to develop more effective solutions in the areas of sales strategy, sales organization, sales process, sales compensation, and quotas. We wrote the books on sales innovation with The Innovative Sale, What Your CEO Needs to Know About Sales Compensation, and Quotas! Design Thinking to Solve Your Biggest Sales Challenge.