Move through the pricing decision in order
| Checkpoint | Question | Useful output |
|---|---|---|
| Cost boundary | Which costs belong to this sale or period? | A documented input set |
| Contribution | What remains after the costs that move with the sale? | Contribution per unit or order |
| Margin scenario | What price produces the selected retained share? | A test price, not a recommendation |
| Commercial challenge | Can value, volume and capacity support the scenario? | A feasible range or a reason to revise |
| Review trigger | What change would make the inputs stale? | A dated next review |
Keep the core measures distinct
unit contribution = selling price - variable cost per unit
- selling price
- Price on the same indirect-tax basis as cost (currency per unit) — user input
- variable cost per unit
- Cost that changes with the unit inside the selected boundary (currency per unit) — business records or user assumption
Contribution is not a complete accounting profit measure.
| Term | Measured against | Decision use |
|---|---|---|
| Markup | Cost | How much is added to cost |
| Margin | Selling price | How much of price remains at the selected profit layer |
| Contribution | Selling price less selected variable costs | What each unit contributes to wider costs and profit |
| Break-even | Contribution and period fixed costs | The threshold required under entered assumptions |
Separate floor, target and stretch scenarios
| Scenario | Purpose | Evidence required | Calculation owner | Failure mode and stop point |
|---|---|---|---|---|
| Floor | Expose the lowest modelled boundary for the selected cost scope and minimum contribution | Current costs, a documented allocation and one consistent unit and tax basis | Minimum Profitable Price Planner | Stop when a load-bearing cost or allocation cannot be reconciled |
| Target | Test the price implied by an independently chosen retained margin or contribution | Cost scope, operating requirement, capacity and downside assumptions | Target Margin & Pricing Calculator | Stop when the target is derived from the proposed price or depends on infeasible volume |
| Stretch | Challenge a higher offer-and-price scenario without calling it the correct price | Customer, offer, alternative and delivery evidence for the defined segment | Business-owned market test; the tools only test its economics | Stop when the evidence is not comparable or the offer cannot support the promise |
Put a margin floor around any dynamic pricing rule
A dynamic pricing rule changes a user-entered price scenario when a defined condition is met. Before allowing that movement, document an invariant floor: the lowest permitted scenario on one aligned cost and indirect-tax basis, with a minimum contribution, an approval range and a stop or rollback condition. The rule does not predict the best price or guarantee a margin.
Seven checks before a rule may move price
- Keep selling price and every included cost on the same unit, currency, period and indirect-tax basis. (not complete)
- Include the variable product or service cost that changes with the sale. (not complete)
- Include channel, payment and fulfilment costs that apply to the scenario being tested. (not complete)
- State the minimum contribution per unit or order that the rule must preserve. (not complete)
- Record the capacity or service constraint that could make extra volume uneconomic or undeliverable. (not complete)
- Set the price range and name the person who must approve movement outside it. (not complete)
- Define the input change, service failure or contribution breach that stops or rolls back the rule. (not complete)
| User-entered case | Inputs to recheck | Decision boundary |
|---|---|---|
| Current scenario | Current aligned unit cost, channel and fulfilment cost, minimum contribution and available capacity | The proposed movement stays inside the approved range and above the documented floor |
| Adverse scenario | Higher user-entered cost or lower available capacity on the same basis | Stop or roll back if contribution crosses the floor, capacity is not supportable or an input cannot be reconciled |
Choose the exact pricing decision
| Decision | Question | Evidence or input boundary | Exact tool | Stop or next decision |
|---|---|---|---|---|
| Portfolio architecture | Which products and assumed or observed mix support the portfolio target? | Product rows on the same unit, period, currency and indirect-tax basis | Multi-Product Price Architecture Planner | Stop if the mix is unsupported or rows use different contribution scopes; review SKU and product-mix evidence next. |
| Contribution | What remains after selected variable costs, in unit and period views? | Selling price and the variable-cost boundary, with fixed cost shown separately | Contribution Margin Planner | Do not call contribution complete accounting profit. |
| Rounded price point | What changes when the candidate price is rounded at the entered volume? | The same product, costs and period, with an explicitly unchanged-volume case | Price Rounding Profit Impact Planner | Treat volume response as a separate sensitivity; the scenario makes no demand claim. |
| Segment comparison | How do segment price, service cost, contribution and required volume differ? | A defined segment and a comparable service and cost boundary | Customer Segment Pricing Planner | Do not confuse a segment with a channel or infer fairness or legal compliance. |
| Contract escalation | How much entered cost change is passed through and remains unrecovered? | A user-confirmed cost base, clause mechanics, period and pass-through assumption | Cost-Plus Contract Escalation Planner | Do not interpret, draft or claim enforceability of a clause; obtain appropriate local review. |
Open the exact pricing decision
- Multi-product Price Architecture Planner
Balance a product portfolio
- Contribution Margin Planner
Measure contribution
- Price Point Rounding Impact Planner
Choose a rounded price point
- Customer Segment Pricing Planner
Compare segment pricing
- Cost Escalation Clause Planner
Apply a contract escalation
Worked scenario: challenge a formula-valid price
The numbers are neutral user assumptions in currency units, before indirect tax.
| Input | Amount |
|---|---|
| Relevant unit cost | 60 currency units |
| Selected margin | 40% |
| Planned unit volume | 120 units |
scenario price = cost / (1 - selected margin)
- cost
- Entered relevant unit cost (currency per unit) — user input
- selected margin
- User-selected scenario, expressed as a decimal (ratio) — user assumption
The formula produces 100 currency units, leaving 40 currency units of unit contribution at this cost boundary. The next decision is not to accept 100 automatically: compare the implied offer, likely volume, capacity and alternative scenarios before acting.
Document the decision and its next review
Record before approving a pricing change
- Input source, owner and date for each relevant cost (not complete)
- Currency, period and indirect-tax basis used consistently (not complete)
- Selected margin or contribution assumption and why it is being tested (not complete)
- Volume, capacity and customer-value evidence that challenges the arithmetic (not complete)
- Discount, mix or break-even scenario most likely to change the decision (not complete)
- Named trigger and date for the next review (not complete)
Methodology used
- Target Margin & Pricing methodology — Margin101
- Break-even Sales methodology — Margin101
- Multi-Product Price Architecture methodology — Margin101
- Contribution Margin Planner methodology — Margin101
- Price Rounding Profit Impact methodology — Margin101
- Customer Segment Pricing methodology — Margin101
- Cost-Plus Contract Escalation methodology — Margin101
Test the next pricing decision
- Target Margin & Pricing Planner
Set a price for a target gross margin
- Discount Profit Impact Planner
Find whether added volume can recover profit after a discount
- Price–Volume Trade-off Planner
Find the sales volume needed to preserve contribution after changing price
- Break-even Sales Planner
Find the units and revenue needed to cover costs or reach target profit
Pricing questions
- What margin should a small business use?
- There is no universal percentage. Test a documented scenario against the relevant cost layer, wider operating needs, customer value, feasible volume and capacity.
- Should a competitor price become the target?
- Use it as context only after comparing like-for-like scope, service and terms. It does not replace your cost and contribution boundary.