Methodology
Price Increase Profit Impact Planner methodology
Educational only: Business decision support, not accounting, tax or legal advice.
Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.
Update policy: Reviewed when formulas or official dependencies change.
Scope: Market-neutral small-business planning using your own assumptions.
1. Formulas and units
elasticityProfitDeltaExTax = proposed unit contribution × elasticity volume − baseline contributionWhere
- baselineVolume
- Baseline volume (whole product units/comparison period)Source: Business record
- elasticity
- Demand elasticity (proportional volume change / proportional price change)Source: User assumption
- elasticityProfitDeltaExTax
- Elasticity Profit Delta Ex Tax (currency units, ex tax)Source: Calculated output
- baselineContributionExTax
- Baseline Contribution Ex Tax (currency units, ex tax)Source: Calculated output
- elasticityVolume
- Elasticity Volume (operational units)Source: Calculated output
baselineContributionExTax = (current price − variable cost) × baseline volumeWhere
- currentPriceExTax
- Current price (currency units/product unit, ex tax)Source: Business record
- variableCostExTax
- Variable cost (currency units/product unit, ex tax)Source: Business record
- baselineVolume
- Baseline volume (whole product units/comparison period)Source: Business record
- baselineContributionExTax
- Baseline Contribution Ex Tax (currency units, ex tax)Source: Calculated output
maximumTolerableVolumeLossRate = 1 − baseline unit contribution ÷ proposed unit contributionWhere
- baselineVolume
- Baseline volume (whole product units/comparison period)Source: Business record
- baselineContributionExTax
- Baseline Contribution Ex Tax (currency units, ex tax)Source: Calculated output
- maximumTolerableVolumeLossRate
- Maximum Tolerable Volume Loss Rate (decimal rate)Source: Calculated output
elasticityVolume = max(0, baseline volume × (1 + elasticity × price change rate))Where
- baselineVolume
- Baseline volume (whole product units/comparison period)Source: Business record
- elasticity
- Demand elasticity (proportional volume change / proportional price change)Source: User assumption
- elasticityVolume
- Elasticity Volume (operational units)Source: Calculated output
Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.
2. Worked example
Input assumptions
The worked rows below come directly from the registered engine and visible default fixture.
Calculation and outputs
Example
The worked rows below come directly from the registered engine and visible default fixture.
- Elasticity Profit Delta Ex Tax
- 3,760 currency units
- Baseline Contribution Ex Tax
- 45,000 currency units
- Maximum Tolerable Volume Loss Rate
- 15.1%
- Elasticity Volume
- 920
The exact engine-derived outputs are shown in the labelled rows below.
Interpretation
The scenario result compares the proposed price gain with the explicit demand response entered by the user.
Scenario study: price movement and contribution
Why a 1% price change need not mean a 1% contribution change
Hold volume and unit cost constant only for this bridge, then compare the currency movement with baseline contribution.
Input basis
- Fictional revenue before indirect tax: 100,000 CU.
- Fictional included variable cost at unchanged volume: 60,000 CU.
- Price-only scenario: revenue rises 1% to 101,000 CU.
| Row | Intermediate calculation | Result |
|---|---|---|
| Baseline contribution | 100,000 − 60,000 | 40,000 CU |
| Scenario contribution | 101,000 − 60,000 | 41,000 CU |
| Contribution change | 41,000 − 40,000 | 1,000 CU |
| Relative contribution change | 1,000 ÷ 40,000 | 2.5% |
Interpretation
The 1% revenue movement produces a 2.5% contribution movement under this fixed-volume, fixed-cost scenario because the change is measured against the smaller baseline contribution.
Boundaries and next step
- Constant volume is a scenario boundary, not a demand forecast.
- The calculation does not say that the price change should be made or that customers will accept it.
Continue with Price Increase Profit Impact Planner or price-rise decision guide.
3. Validation and boundary checks
- All inputs must be finite and within the visible validation boundaries.
- Rates use decimal values below 100%; whole-unit thresholds round upward only where the engine names that rule.
- All compared monetary inputs use one consistent ex-tax basis and planning period.
4. Assumptions and source classification
- Every cost, price, fee and volume is supplied by the user; no market benchmark is inferred.
- Indirect tax is excluded from retained commercial economics unless a dedicated input explicitly models it.
- The engine retains full precision and display formatting never feeds back into calculation.
This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.
5. Limitations
- The model does not forecast demand, competitor response, supplier negotiation outcomes or capacity.
- It does not replace accounting, tax, legal or financial advice.
This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.
6. Update and evidence policy
Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.
Change history
- : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.
Related reading
Guides to interpret the decision and its assumptions.
- How to Raise Prices Without Guessing
Build a price-rise decision from a reconciled baseline, downside scenarios, offer boundaries, rollout checkpoints and review evidence.
Read guide - Price vs Cost Cuts: Which Profit Lever Moves More?
Compare price and unit-cost levers on the same contribution basis, then test their different demand, quality, capacity and timing risks.
Read guide