Use one comparable baseline
- Set the baseline price, unit cost, volume and period.
- Calculate baseline unit and total contribution.
- Enter the proposed price and recalculate unit contribution on the same cost boundary.
- Divide baseline total contribution by proposed unit contribution and round upward.
- Challenge the result with demand, capacity, mix and step-cost constraints.
required proposed units = ceil(baseline unit contribution × baseline units / proposed unit contribution)
- baseline unit contribution
- Baseline price less baseline variable unit cost (currency per unit) — calculated from user inputs
- baseline units
- Comparable units in the baseline period (whole units) — business record or assumption
- proposed unit contribution
- Proposed price less variable unit cost for the proposed scenario (currency per unit) — calculated from user inputs
Worked example: a higher price and lower threshold
| Measure | Baseline | Proposed |
|---|---|---|
| Price | 100 | 110 |
| Variable unit cost | 60 | 60 |
| Unit contribution | 40 | 50 |
| Units to preserve 4,000 contribution | 100 | 80 |
Check the constraints around the arithmetic
- Baseline and proposed figures use the same period and units. (not complete)
- Variable cost changes caused by the new price or volume are reflected. (not complete)
- Step costs and capacity limits are modelled separately. (not complete)
- Product substitution and mix effects are not hidden. (not complete)
- The result is labelled a threshold, not a forecast. (not complete)
Methodology used
- Price-Volume Trade-off methodology — Margin101
Related tools
- Price–Volume Trade-off Planner
Find the sales volume needed to preserve contribution after changing price
- Product Mix Profit Planner
Compare contribution when the volume mix changes across products