Price increase calculator

The formulas

The new price is the old one plus the percentage:

New price = current price × (1 + increase ÷ 100)

How much volume you can afford to lose depends on your contribution margin: the price minus the costs that rise and fall with each sale, such as materials, packaging, delivery and commission, as a percentage of the price.

Sales you could lose = increase ÷ (contribution margin + increase) × 100

Put simply, a rise adds the same amount to the profit on every unit you still sell, so you can sell fewer units and earn the same gross profit in total. Lose exactly that share of volume and you end up where you started. Lose less and you're ahead; lose more and the rise has cost you money.

Worked example

A fictional 60-person contract bakery sells tray bakes to cafés at £24 a tray, excluding VAT. Ingredients, packaging and delivery come to £16.80 a tray, so its contribution margin is 30%. It sells about 24,000 trays a year, and with flour and energy costs up it's considering a 5% rise.

• The new price is £25.20, £1.20 more per tray. If every café keeps ordering as before, that's £28,800 a year of extra revenue, and all of it is extra profit.
• Contribution per tray goes from £7.20 to £8.40. Working out 5 ÷ (30 + 5) shows the bakery could sell 14.3% fewer trays, about one in seven, and still earn the same gross profit.
• That's roughly 3,400 trays a year. The bakery expects to lose one small café chain that buys far fewer than that, so the rise is worth making.

These are the default figures in both calculators.

How to read the result

The percentage is a threshold, not a forecast. It hands you a narrower question: would you really lose that much business? Weigh up:

• who your customers could switch to, and what switching would cost them in time and risk;
• where your price sits against the alternatives after the rise;
• which customers have fixed prices or review dates in their contracts;
• whether customers are seeing the same costs go up elsewhere.

The lower your margin, the more volume a rise can afford to lose. At a 30% margin a 5% rise survives losing 14.3% of sales; at a 60% margin, only 7.7%. Cuts work the other way, and harder: a 5% cut at a 30% margin needs 20% more volume just to stand still, which is why the second calculator shows 120% of today's sales for that case.

Before you put prices up

1. Work out the rise per product or customer group, based on how far each one's costs have actually moved, rather than one figure for everything.
2. Check each customer agreement for price review dates and the notice it requires.
3. Round to sensible price points, then re-run the sums at the rounded price.
4. Tell customers in writing, with the date the new price starts and a short reason.
5. Track volumes by customer for the next few months against the threshold, so you know whether the rise worked.

To see what a new price does to the margin on one line, use the gross margin calculator.

Common mistakes

• Using a gross margin that includes fixed costs. If salaried production staff sit in cost of sales, gross margin understates the profit you give up on each lost sale, and the calculator will overstate how much volume you can lose.
• Working on prices that include VAT. Use net prices, so the margin and the rise are measured on money the business keeps.
• Forgetting discounts. If most customers get 10% off the list price, the rise only reaches you on the discounted price.
• Looking only at revenue. A rise that loses some volume can still raise profit, so judge it on gross profit, not on sales.
• Waiting too long. Every month on the old price after costs have gone up is margin you don't get back.