Compare three responses to the same supplier-cost increase
Hold the unit, period and indirect-tax basis constant before comparing responses. In this fictional scenario, price is 100 CU and included cost rises from 60 CU to 66 CU. The six-unit movement is a user scenario, not a supplier forecast or market-price recommendation.
| Response | Intermediate calculation | Contribution / margin | Decision checkpoint |
|---|---|---|---|
| Absorb | 100 − 66 | 34 CU / 34% | Can the lower contribution support the chosen cost boundary? |
| Preserve contribution | 66 + 40 | 106 CU price; 40 CU contribution / 37.74% margin | Test demand and communication separately |
| Preserve 40% margin | 66 ÷ (1 − 0.40) | 110 CU price; 44 CU contribution / 40% margin | Confirm the margin target is user-selected |
Clean the baseline before choosing a change
Required inputs
- Source-dated variable and relevant fixed costs on one cost boundary. (not complete)
- Realised price after normal discounts, credits or concessions. (not complete)
- Comparable sales volume for a named period. (not complete)
- Current scope, service level, capacity and delivery constraints. (not complete)
- Known contract or notice boundaries, referred for qualified review when uncertain. (not complete)
Move through the price-increase decision in order
- Name the trigger: cost change, scope change, capacity pressure, positioning or an expiring assumption.
- Reconcile current realised price, unit cost, contribution and period volume.
- Test the proposed price under unchanged, downside and other useful user-entered volume cases.
- Check whether scope, service, alternatives and customer-value evidence still support the offer.
- Choose the affected products or customers, effective date, communication owner and operational rollout.
- Record the baseline, measurement period, decision owner and the trigger to review or stop.
| Checkpoint | Continue when | Stop when |
|---|---|---|
| Baseline | Inputs share one unit, period and tax basis | The comparison cannot be reproduced |
| Economics | Contribution remains positive and total contribution is visible | The proposed case destroys the selected contribution boundary |
| Demand scenario | Volume is labelled as an assumption and sensitivity is shown | A guessed response is presented as a forecast |
| Offer and scope | The compared offer and delivery promise are explicit | A different scope is being compared without adjustment |
| Rollout | Ownership, communication and measurement are defined | Contract or legal uncertainty remains unresolved |
Bridge the changed cost before choosing a response
| Measure | Before change | After change at current price | Interpretation |
|---|---|---|---|
| Realised price per unit | 100 | 100 | Held constant to isolate the changed input |
| Variable cost per unit | 60 | 66 | One fictional changed supplier input, same cost and tax basis |
| Contribution per unit | 40 | 34 | Falls by 6 before any operational response |
| Baseline volume per period | 100 units | 100 units | Held constant for the bridge; not a demand forecast |
| Total contribution per period | 4,000 | 3,400 | A 600 reduction under the simplified constant-volume case |
| Response | Question to test | Stop point |
|---|---|---|
| Price | What price scenario restores the selected contribution, and what volume sensitivity follows? | Stop if the volume response is presented as known demand |
| Scope | Can the offer boundary change without obscuring what the customer receives? | Stop when the before-and-after offers are not comparable |
| Process or sourcing | Can waste, input use or supplier terms change without moving cost elsewhere? | Stop when the saving is unsupported or counted twice |
| Capacity and mix | Can available capacity support a different volume or product mix? | Stop before an unmodelled step cost or infeasible workload |
Worked scenario: a higher price with lower assumed volume
Figures are neutral user assumptions for one comparable period, before indirect tax. The downside volume is not a forecast.
total contribution = (price per unit - variable cost per unit) × units sold
- price per unit
- Realised or proposed selling price on the selected basis (currency units per unit) — business record or user input
- variable cost per unit
- Cost that changes with each unit inside the selected boundary (currency units per unit) — business record or user input
- units sold
- Baseline record or labelled scenario volume for one period (units per period) — business record or user assumption
| Measure | Current baseline | Proposed-price downside |
|---|---|---|
| Price per unit | 100 | 108 |
| Variable cost per unit | 60 | 60 |
| Contribution per unit | 40 | 48 |
| Units per period | 100 | 88 assumed |
| Total contribution per period | 4,000 | 4,224 |
The baseline contribution is (100 - 60) × 100 = 4,000. The downside scenario is (108 - 60) × 88 = 4,224. The proposed price needs at least 84 whole units to exceed this simplified baseline contribution, before any changed rollout, service or acquisition cost.
Plan rollout, communication and measurement
Decision record
- Affected offer, scope, customer group and effective date. (not complete)
- Reason for the change stated accurately without unsupported promises. (not complete)
- Owner for customer communication and operational updates. (not complete)
- Baseline and downside cases retained for comparison. (not complete)
- Volume, realised price, contribution and feedback reviewed on a stated date. (not complete)
- Stop, revise or escalate condition assigned to a named owner. (not complete)
Price-increase questions
- How much should a small business raise prices?
- There is no universal percentage. Test one or more proposed prices against current costs, contribution, comparable volume cases, scope, customer-value evidence and capacity. The tool calculates scenarios; it does not recommend a price.
- Does higher contribution per unit mean total profit will rise?
- No. Total contribution also depends on volume and any changed costs. Wider accounting profit can include costs outside this simplified boundary.
- Is the downside volume a forecast?
- No. It is a user-entered sensitivity case. Preserve it as an assumption, compare other cases and measure the actual result against the same dated baseline.
Methods and process context
- Price Increase Profit Impact methodology — Margin101: Contribution comparison and volume-threshold logic used in the worked scenario.
- How To Increase Prices: Strategies and Best Practices — Shopify: Process and communication context only; not evidence that a tactic preserves demand.
- How to increase prices without losing loyal customers — Xero: Competitor process context only; no retention promise or notice-period rule is adopted.