How to calculate a price increase
The percentage increase is the change in price divided by the old price.
Increases and decreases are not symmetrical. Undoing a 10% increase takes a 9.09% cut from the new price, because the cut is measured against a larger number. Two 5% increases in a row add 10.25%, not 10%.
How many sales can you lose after a price increase?
A price increase pays off as long as unit sales fall by less than increase ÷ (margin + increase), where margin is the old contribution margin on each unit.[1] At a 40% margin and a 10% increase, that is 10.00% ÷ (40% + 10%) = 20.0%.
| Margin | +5% | +10% | +15% | +20% |
|---|---|---|---|---|
| 20% | 20.0% | 33.3% | 42.9% | 50.0% |
| 30% | 14.3% | 25.0% | 33.3% | 40.0% |
| 40% | 11.1% | 20.0% | 27.3% | 33.3% |
| 50% | 9.1% | 16.7% | 23.1% | 28.6% |
Low-margin products are the most sensitive to price. At a 20% margin, a 10% increase still breaks even if a third of the units disappear; at a 50% margin, it has to keep five out of six.
Raising prices with inflation
To keep your real price level with inflation, raise it by the change in the Consumer Price Index over the same period; the Bureau of Labor Statistics publishes the CPI monthly.[2] Check your own costs as well: if your inputs rose faster than the CPI, matching inflation still squeezes your margin. Use the margin calculator to see the price that restores your old margin at the new cost, or the selling price calculator if fees come out of the price.
Communicating a price increase
- Give notice to subscribers and wholesale customers, and honor quotes already given.
- Raise the price, not hidden fees. The FTC's guides on deceptive pricing apply to advertised prices and comparisons.[3]
- Track volume for a few weeks against the break-even loss above. The break-even calculator shows the new break-even point.
- Do the reverse test before a sale: the discount calculator shows how much more you must sell after a price cut.
Frequently asked questions
How do I calculate the percentage increase in price?
Subtract the old price from the new price, divide by the old price and multiply by 100. $20 to $22 is a 10% increase.
How do I add a percentage increase to a price?
Multiply the price by one plus the increase as a decimal: $20 × 1.10 = $22.
What percentage decrease undoes a 10% increase?
A 9.09% decrease. The cut is divided by the higher price, so it is smaller in percentage terms than the increase.
Will I lose money if customers buy less after a price increase?
Only if unit sales fall by more than increase ÷ (margin + increase). With a 40% margin and a 10% increase, you can lose up to 20% of units and earn the same profit.
How often should prices go up?
There is no fixed rule. Many businesses review prices at least once a year against their costs, inflation and competitors.