Dynamic & Range-Based Planning

How to build tariff sensitivity modeling to make smarter decisions

My last essay focused on what and why around tariffs and capitalization. In this one, I’ll focus on how to plan and prepare your forecast to make quality decisions.

The Illusion of Precision

A mistake most operators make isn’t missing the forecast. It’s building a plan that only works if the forecast is right.

We’ve seen this firsthand. A high-growth consumer brand imported nearly all of its goods from China when news broke that tariffs might jump from X% to Y%. Panic set in. Their financial model had limited flexibility. Pricing levers were minimal. Contingency plans were scattered and unfocused. The forecast assumed a static goalpost, and the goalpost moved.

The problem wasn’t the tariff. It was fragility. Their entire plan rested on a single-point assumption. Not range-based planning.

In today’s environment (where geopolitical risk, trade policy, and FX volatility shapes the game), you don’t win by being right. You win by being flexible and ready.

I want all operators to build resilience into their planning. Model a range of outcomes. Know what breaks at 15% tariffs, 25%, or 35%. Be prepared.

This is where range-based planning and tariff sensitivity modeling come in.

Why Traditional Forecasting Doesn’t Always Work

Most mid-market companies still plan with a spreadsheet mentality: pick a growth rate, adjust drivers, plug in a COGS and contribution margin assumptions, run the math, etc.

But during times of uncertainty (and volatility), this approach becomes a liability. The illusion of precision is comforting, but it doesn’t protect your cash runway when the floor drops out. Here’s why:

• Tariffs are binary, but their impact is continuous. A 25% import duty doesn’t just hit COGS; it flows through gross profit, contribution margin, marketing efficiency, breakeven points, and ultimately liquidity.

• Planning cycles are slow. By the time your team reforecasts (across different business layers, from merchandising to finance) in Q2, the impact is already being felt.

• Board and lender communication gets strained. It’s hard to explain why goals were missed if you're not actively modeling downside risk.

We need a margin of safety in our models. That starts by shifting away from a fixed-point forecast and toward a range-based plan.

I was at Berkshire’s annual conference last week. Buffet often discusses the margin of safety when making investments (he learned this from Charlie Munger). I’ll reference this frequently in my future letters (via range based planning, scenario modeling) when I discuss the margin of safety.

The Basics of Range-Based Planning

Range-based planning asks a simple question: What would you do if the world turned out better or worse than expected?

Instead of building one “most likely” forecast, you model 3-5 cases:

• Upside Case: Tariffs decline, sales velocity accelerates, and gross margin expands.

• Base Case: Tariffs stay flat, consumer demand remains steady.

• Downside Case: Tariffs spike, freight costs rise, and pricing power weakens.

• Black Swan (optional): Policy shock, recession, supplier failure, etc.

Let’s say your brand currently operates with a 40% gross margin and imports goods from China. Here’s a simplified view:

Now, link this to contribution margin, media efficiency (MER/ROAS), and cash runway. What’s your breakeven point in each scenario? Can you fund inventory purchases if margins compress?

This will help your team answer real questions:

• What promotions or SKUs break in the downside case?

• What fixed costs can be deferred if top-line revenue slows?

• What working capital needs emerge at each margin level?

Range-based planning creates a decision confidence map: which actions are resilient across most outcomes vs. which are fragile.

How to Build a Tariff Sensitivity Model

Here’s how to build that model (step by step).

Identify Exposure

Start by isolating which products are tariff-exposed. Not all SKUs are treated equally under U.S. trade policy.

Inputs to gather:

• Country of origin per SKU

• Harmonized Tariff Schedule (HTS) code per product

• % of total COGS represented by tariff-exposed SKUs

• Incoterms: Are you paying duties or is your supplier?

Create a “Tariff-Exposed Cost” column in your BOM (Bill of Materials). This becomes the input for modeling volatility.

Create Sensitivity Inputs

Build a sensitivity input table into your financial model. At a minimum:

This gives you a direct line to gross margin pressure from tariffs.

Flow It Through the P&L

Now you plug this into your financial model:

• COGS increases by the total tariff cost

• Gross Profit compresses accordingly

• Contribution Margin (post-marketing margin) shrinks

• CAC payback increases

• EBITDA impact and cash runway get shorter

Here’s an example of how margin may compress:

Tariffs will materially impact how companies spend on marketing. You have to control for wasted media spend. Become relentless on tracking / controlling for quality impressions. This doesn’t mean over-leveraging on just DR ads, but rather, focus on quality impressions with good creative.

In short: marketing has to work harder and more efficiently in times like this.

Add Layers of Realism

Most brands underestimate the second-order effects. Let’s go deeper.

• Freight Costs: Many suppliers bake tariffs into the all-in FOB price. That means tariff hikes can be hidden in pricing. Track this separately.

• FX Impact: A weakening USD makes imports more expensive, compounding tariff pain.

• Supplier Negotiation Power: Can you reclassify goods (make sure this is legal), split service vs. physical goods, or shift sourcing to a neutral country? I recommend decoupling services regardless of country of origin. It’s a key anchor to help save on tariffs.

This is optional, but add a “sourcing shift scenario”… what happens to margin and lead time if you move production to Mexico or Vietnam?

Build a Waterfall Chart

If you’re presenting this to a board or investor, try building a Tariff Sensitivity Waterfall:

Example:

• Starting Gross Margin: 50%

• Tariff Impact: -6%

• Freight Increases: -2%

• FX Drag: -1%

• Final Gross Margin: 41%

This makes it clear: margin loss is a stack of forces, not a single variable.

Decision Use Cases

Once you’ve modeled tariff sensitivity, here are a few ideas to help you plan:

• Pricing strategy: What happens if you pass through 25% of the cost? 50%? All of it? Model churn and volume sensitivity.

• Promotional budget: In high-tariff scenarios, can you cut discounting or rework bundles?

• Inventory strategy: Should you accelerate PO placement ahead of new tariff timelines?

• Supplier diversification: What’s the ROI of nearshoring or dual-sourcing?

Bottom Line: You can’t control the policy environment, but you can control your preparation. Tariff modeling isn’t just financial hygiene. It’s strategic positioning. It protects your margins, informs your go-to-market, and gives you real optionality when the world changes faster than your forecast.

Decision-Making in Uncertainty

We have to go beyond the forecast. The real power of this approach lies in its ability to change how companies act, not just how they plan.

1. Finding the “Robust Moves”

Not every decision needs to be hedged. The best operators identify actions that remain valid across all scenarios. These are robust strategies.

Ask yourself:

• Which initiatives remain ROI-positive in all three cases (base, downside, upside)?

• Which levers protect cash without damaging future upside?

• Where do you need optionality instead of commitment?

Example: A brand that shifts to just-in-time inventory loses some freight efficiency but avoids locking up cash in uncertain tariff conditions. That could be considered a robust move.

2. Pricing Under Pressure

Should you pass through tariff costs to the customer?

Use the model to test your elasticity assumptions:

• Can you raise AOV without negatively affecting conversion?

• Would bundling offset perceived price hikes?

• Does your brand have pricing power? Understanding the price elasticity of demand is critical here.

Decision framework: If gross margin drops from 50% to 40% under a new tariff framework, how much price increase is needed to hold the line, and what’s the projected drop in volume? Model this out.

3. Managing Fixed Costs and Burn

In the downside case, what happens to cash runway?

• Do you need to delay hiring?

• Renegotiate office leases?

• Reevaluate software and tooling expense?

Range-based planning gives you early visibility into these types of decisions.

4. Communicating With Your Board and Lenders

Your board wants clarity, not certainty.

Use scenario models to:

• Set shared expectations

• Align on thresholds for action (“if tariffs hit 25%, we delay $XY of CapEx investment”)

• Build trust in your planning discipline

What it sounds like: “We’re prepared for three outcomes. We’re not betting the company on a single-point forecast.”

5. Optionality Beats Optimization

In volatile markets, the value of optionality exceeds the value of precision.

• Don’t over-optimize for the base case

• Preserve flexibility in your supply chain, pricing strategy, and hiring plan

• Hold cash as a call option on opportunity

As Buffett once said: “The most important thing to do when you’re in a hole is to stop digging.” Range-based planning tells you where the holes are before you fall into them.

Turning Fragility Into Optionality

Tariffs. Freight spikes. FX swings. These aren’t black swans anymore. They’re part of the operating environment now.

If your model only works when the world behaves exactly as expected, then it’ll misguide you.

What separates durable companies from fragile ones isn’t their ability to properly forecast the desired future state. Range-based planning gives you that edge. It arms you with:

• Scenarios instead of guesses

• Confidence instead of surprises

• Clear strategy instead of hopes

In moments like these, optionality is more valuable than optimization. And preparation beats prediction every time.

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Seeing Warren Buffett Live

Pardon the blurry photo. But attending Berkshire’s annual shareholder meeting was a highlight last week for me; esp one where Warren announced that he’s stepping back and will let Greg drive going forward. For 5 hours straight, we all sat there and watched Warren tell stories, life lessons, investment philosophy, and of course, discuss the importance of liquidity.

A few gems that stuck with me from Warren Buffett, Charlie Munger (in spirit), and Greg Abel:

On Leadership & People

• You don’t see someone’s talent until you give them real responsibility

• Discipline is everything… whether leading, managing risk, or deploying capital

• “If we can do 5 things well, we’ll be successful. We don’t need to do 50.” – Munger

• Who you work with and around shapes your habits. Choose wisely

• Trust is a currency. Be someone others can count on

• If you’re not excited about an idea or deal in 5 seconds, say no

On Capital Allocation & Investing

• Size is the enemy of performance

• The best returns often come from not being fully invested

• If you had to invest $50B/year, you’d appreciate the value of holding cash

• Be ready to move fast when the right opportunity comes

• Stocks offer flexibility and scale that real estate never can

• Keep your curiosity high. Read constantly

• “It’s easier to do dumb things with other people’s money.” Avoid that trap

On Global & Macro Thinking

• Currency stability is foundational. Without it, you can’t build anything lasting

• Buffett’s advice to nations: get inflation under control, protect your currency

• Betting on the USA has worked since 1790. It’s not about perfection, it’s about endurance

• The U.S. has 330M people in a world of 8B. If you were born here, you’ve already won the game

On Company Building (Greg Abel)

• Stay independent. Don’t rely on banks to save you

• Strong balance sheets give you freedom

• We want to acquire 100% of businesses when possible

• Value must match risk. Timing matters

• Long-term ownership mindset always wins. We’re not traders

Perhaps my biggest takeaway, which is a summary of what Warren has always preached:

Cash is a call option with no expiration date, an option on every asset class, with no strike price.