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Methodology

Tiered Pricing Profit Planner methodology

Reconcile revenue and profit across two price tiers.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

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

Operating Profit Ex Tax
operatingProfitExTax = total tier contribution − fixed costs

Where

fixedCostsExTax
Fixed costs (currency units/comparison period, ex tax)Source: Business record
operatingProfitExTax
Operating Profit Ex Tax (currency units, ex tax)Source: Calculated output
contributionExTax
Contribution Ex Tax (currency units, ex tax)Source: Calculated output
Revenue Ex Tax
revenueExTax = tier one price × units + tier two price × units

Where

tierOnePriceExTax
Tier one price (currency units/tier one unit, ex tax)Source: User decision
tierOneUnits
Tier one units (whole tier one units/comparison period)Source: User assumption
tierTwoPriceExTax
Tier two price (currency units/tier two unit, ex tax)Source: User decision
tierTwoUnits
Tier two units (whole tier two units/comparison period)Source: User assumption
revenueExTax
Revenue Ex Tax (currency units, ex tax)Source: Calculated output
Contribution Ex Tax
contributionExTax = tier revenue − unit variable cost × total units

Where

unitVariableCostExTax
Variable cost per unit (currency units/product unit, ex tax)Source: Business record
revenueExTax
Revenue Ex Tax (currency units, ex tax)Source: Calculated output
contributionExTax
Contribution Ex Tax (currency units, ex tax)Source: Calculated output
Weighted Average Price Ex Tax
weightedAveragePriceExTax = tier revenue ÷ total units

Where

revenueExTax
Revenue Ex Tax (currency units, ex tax)Source: Calculated output
weightedAveragePriceExTax
Weighted Average Price Ex Tax (currency units, ex tax)Source: Calculated output
Contribution Margin
contributionMargin = tier contribution ÷ tier revenue

Where

revenueExTax
Revenue Ex Tax (currency units, ex tax)Source: Calculated output
contributionExTax
Contribution Ex Tax (currency units, ex tax)Source: Calculated output
contributionMargin
Contribution Margin (decimal rate)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.

Operating Profit Ex Tax
7,500 currency units
Revenue Ex Tax
31,250 currency units
Contribution Ex Tax
15,500 currency units
Weighted Average Price Ex Tax
89.29 currency units
Contribution Margin
49.6%

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

Weighted price and operating profit show the combined economics of both expected pricing tiers.

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

  1. : 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.

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