How a price increase is calculated
A price increase can be set as a percentage of the current price or as an amount. To get the new price, multiply the current price by 1 plus the increase as a decimal: $50 with a 10% increase is 50 × 1.10 = $55. To go the other way and find the percentage between two prices, divide the difference by the old price. The price increase calculator does both, and it also takes an increase in money, like $5 more per unit.
The percentage always refers to the old price. That is why a 10% increase followed by a 10% discount does not bring you back to where you started: $55 minus 10% is $49.50.
How many customers can you lose when you raise prices?
When you raise prices, some customers may buy less or leave. The question that matters is how many can go before the increase stops paying off. The answer depends on your gross margin, the share of the price that is left after the variable cost of each sale.
Take the example in the calculator. A product sells for $50 and costs $30 per unit, a 40% margin. Each sale earns $20 in gross profit, so 1,000 sales a month earn $20,000. After a 10% increase the price is $55.00 and each sale earns $25.00, because the cost stays the same. To earn $20,000 again, you need only 800 sales: 800 × $25 = $20,000. You could lose 200 sales, or 20.0%, and earn exactly the same gross profit as before, on less work and less stock.
The general rule follows from setting the gross profit before and after equal. If m is your margin and i is the increase, both as decimals, the share of sales you can lose is i ÷ (m + i). Here that is 0.10 ÷ (0.40 + 0.10) = 0.20, or 20%. If you lose fewer sales than that, the increase raises your gross profit; if you lose more, it lowers it.
Break-even table: sales you can lose
The share of sales you can lose and still earn the same gross profit, for common margins and increases. Lower margins can lose more, because the same increase adds a bigger share to a small profit per sale.
| Gross margin | +5% price | +10% price | +15% price | +20% price |
|---|---|---|---|---|
| 20% | 20.0% | 33.3% | 42.9% | 50.0% |
| 30% | 14.3% | 25.0% | 33.3% | 40.0% |
| 40% | 11.1% | 20.0% | 27.3% | 33.3% |
| 50% | 9.1% | 16.7% | 23.1% | 28.6% |
| 60% | 7.7% | 14.3% | 20.0% | 25.0% |
| 70% | 6.7% | 12.5% | 17.6% | 22.2% |
| 80% | 5.9% | 11.1% | 15.8% | 20.0% |
A business with a 20% margin can lose a fifth of its sales after a 5% increase and still earn the same, while a business with an 80% margin breaks even after losing only 5.9% of its sales. Neither number says how many customers will actually leave. That depends on your customers, your market and your competitors, and only your own sales data can show it. The table shows where the line is.
Why your margin matters so much
A price increase adds the same amount to every sale you keep. What changes from business to business is how big that amount is compared with the profit you made before. With a 20% margin on a $50 product, a 10% increase lifts the profit per sale from $10 to $15, half as much again. With an 80% margin, the same $5 lifts it from $40 to $45, only one eighth more. The first business can lose a third of its sales and still break even; the second only about 11%.
If you do not know your margin, the profit margin calculator works it out from your cost and price. You can also switch the margin field to "Unit cost" and enter what one unit costs you. Include every cost that comes with each sale, such as materials, packaging, payment fees and shipping you pay, but not rent or salaries that stay the same either way.
Price cuts work the other way
The same math shows what a discount needs. After a price cut you have to sell more to keep the same gross profit, and the extra share is the cut ÷ (margin − cut). With a 40% margin, a 10% cut needs 10 ÷ (40 − 10) = 33.3% more sales. A 20% cut needs 100% more, twice as many sales. If the cut is as large as your margin, you sell at or below your cost and no amount of extra sales brings the profit back. Enter a lower new price under "Two prices" to see this for your own numbers; the slider then sets how many sales you gain. Or plan a sale with the discount calculator.
What the calculation leaves out
- It is a break-even, not a forecast. The calculator tells you how many sales you can lose, not how many you will lose. Use the slider to try out different outcomes.
- Fixed costs are assumed to stay the same. Rent, salaries and software do not change with a few more or fewer sales, so equal gross profit means equal profit after fixed costs. To see how many sales cover your fixed costs, use the break-even calculator.
- Every sale pays the same price. If customers buy fewer units instead of leaving, enter units; if they cancel a subscription, enter customers. The math is the same.
- Prices are net. Use prices without sales tax or VAT, since the tax is not part of your revenue.
How to use the price increase calculator
- 1Choose how you want to set the new price: by a percentage, by an amount per unit, or by entering the old and the new price to get the percentage.
- 2Enter your current price and the increase. The new price and the change appear right away.
- 3Add your gross margin, or your cost per unit, to see how many customers or sales you can lose and still earn the same gross profit.
- 4Enter your sales per month and move the slider to compare revenue and gross profit before and after. Copy the result or a link to share it.
Frequently asked questions
How do I calculate the percentage of a price increase?
Subtract the old price from the new price, divide by the old price and multiply by 100. A price that goes from $40 to $46 rises by (46 − 40) ÷ 40 × 100 = 15%. Choose "Two prices" in the calculator to do this for you.
How do I add a percentage to a price?
Multiply the price by 1 plus the percentage as a decimal. An $80 price with a 12.5% increase becomes 80 × 1.125 = $90. Adding the percentage of the price as an amount gives the same result: 12.5% of $80 is $10.
How many customers can I lose after a price increase?
As a share of your sales, at most the increase divided by your gross margin plus the increase. With a 40% margin and a 10% increase that is 10 ÷ (40 + 10) = 20%. If you lose fewer than that, your gross profit goes up; if you lose more, it goes down.
Why does the calculator need my margin?
Because the margin decides how much more profit each remaining sale brings. The increase adds the same amount to every sale, but on a thin margin that amount is large compared with the profit you made before, so you can afford to lose more sales. On a high margin it adds relatively little.
Does the break-even include fixed costs like rent?
Fixed costs stay the same whether you sell a little more or a little less, so they drop out of the comparison: if your gross profit stays the same, so does your profit after fixed costs. The calculation does assume your fixed costs do not change because of the price increase.
Should I enter prices with or without sales tax?
Without. Sales tax and VAT are passed on to the government and are not part of your revenue or your margin. Use your net prices for the old price, the new price and the unit cost.
Is a 20% increase undone by a 20% decrease?
No. Percentages are taken from different starting prices. $100 plus 20% is $120, and $120 minus 20% is $96. To get back from $120 to $100 you need a cut of 16.67%. The same goes the other way: going from $80 to $100 is a 25% increase, but from $100 back to $80 is a 20% decrease.