Reference
Price-rise breakeven: how much volume can you afford to lose?
A price rise pays as long as the volume you lose is smaller than the breakeven, and the breakeven is set by one number: your contribution margin. At a 30% margin, a 5% rise can lose about 14% of volume before it costs you anything. A 5% cut on the same margin needs 20% more volume just to stand still. Most businesses argue about price rises without knowing either number, so the argument is settled by whoever fears the customer most.
The question in the title is the one to ask before any price move, and it has an exact answer. It is not the same as the question "how much volume will we lose?", which is an estimate about the market. The gap between the two is where the decision lives.
What the breakeven is
The breakeven is the change in volume at which a price move leaves contribution exactly where it was. Contribution is price less variable cost, the money each unit adds before fixed costs. Fixed costs do not enter the calculation, because they are the same before and after the move. That surprises people, and it matters: a price rise does not have to "cover the overheads". It has to leave more contribution behind than the old price did.
The arithmetic is short. Call the price change Δp, as a fraction of current price, and the contribution margin m, as a fraction of price. The volume change that breaks even is:
volume change = −Δp / (m + Δp)
For a 5% rise on a 30% margin, that is −0.05 / 0.35, or a fall of about 14%. For a 5% cut, it is 0.05 / 0.25, a rise of 20%. Lose less than 14% and the rise made money. Gain less than 20% and the cut lost it.
Example: A distributor puts through a 6% across-the-board rise on a 25% margin. Two large accounts leave, and the sales team calls the rise a disaster. The two accounts were a tenth of volume. The breakeven was a fall of nineteen per cent. The rise made money, and nobody had done the maths.
The table by margin
The breakeven depends on the margin far more than on the size of the move. That is why the same 5% feels safe in one business and reckless in another. Volume change needed to break even:
| Contribution margin | +5% price | +10% | +15% | −5% price | −10% | −15% |
|---|---|---|---|---|---|---|
| 20% | −20% | −33% | −43% | +33% | +100% | +300% |
| 30% | −14% | −25% | −33% | +20% | +50% | +100% |
| 40% | −11% | −20% | −27% | +14% | +33% | +60% |
| 50% | −9% | −17% | −23% | +11% | +25% | +43% |
Read across a row and the asymmetry is the whole lesson. On a 20% margin, a 10% rise can lose a third of its volume and break even. A 10% cut has to double it. On a 50% margin the two sides are closer, and cuts become thinkable. Low-margin businesses that cut price are betting on volume gains that almost no market delivers.
Example: A building-products manufacturer on a 22% margin cuts price by 8% to win back a lost tender. It wins the tender and two more. Volume is up 15%. The breakeven was a rise of 57%. The business is busier and poorer, and the extra work has filled the plant with its least profitable orders.
Afford to lose, against will lose
The table says what you can afford. Elasticity says what you will actually lose, and the elasticity page covers how to estimate it. The two numbers are compared on the same scale: divide the breakeven volume change by the price change, and you have the elasticity at which the move stops paying. A 5% rise on a 30% margin breaks even at an elasticity of about 2.9. If your customers' response is weaker than that, which for most business-to-business products against a last-paid reference it is, the rise pays.
That comparison is the decision. A move where the market's elasticity sits well inside the breakeven is safe, and the only question is how far to go. A move where the two are close is a test, and should be run as one. A move where the elasticity sits outside the breakeven is a mistake, however good the volume looks afterwards.
Example: A subscription business on a 60% margin has never raised its price for fear of churn. Its breakeven for a 10% rise is a loss of 14% of subscribers. Its own churn data, cut by cohort, shows an elasticity well below one. The rise goes through with churn up by two points, and the business has left a decade of that margin on the table.
What the number does not tell you
The breakeven is exact and incomplete, and four things sit outside it.
Competitor response. The table assumes competitors hold. If a rise is matched, volume barely moves and the sum is better than it looks. If a cut is matched, the volume gain vanishes and the sum is worse. The right comparison for a cut is usually not the breakeven but the industry's new price after everyone has followed.
Mix. Volume lost after a rise is rarely average volume. The customers who leave are often the ones on the deepest discounts, and the mix that stays earns more than the margin in the table. The reverse holds for cuts: the volume gained is the most price-sensitive, and it comes with the cost to serve that price-sensitive volume brings.
Timing. The volume effect of a rise arrives over renewals and tenders, not on the day. Measure realisation at three, six and twelve months against the breakeven, not the first month's noise.
Fixed-cost steps. Fixed costs do not enter the breakeven, but a volume gain that needs a new shift, a new site or new capacity does. A cut that breaks even on contribution can still lose on the capacity it has to add.
Where a business stands on modelling price moves
How list price moves are made is a practice in the price-setting dimension of a stages-of-excellence pricing assessment. The five stages read:
- Lagging: List prices only change when a supplier cost increase forces it.
- Basic: List prices are cost-plus with a standard markup, reviewed when someone remembers.
- Competent: List prices consider cost, competitor prices and customer feedback, and are reviewed on a calendar.
- Advanced: List prices are set from value and market position by segment, with cost as a floor, not the formula.
- Leading: List price moves are modelled (volume, margin, competitor response) before they are made and tracked after.
The breakeven is the first line of that model, and it takes a minute. In our experience most businesses sit at the second or third stage on this row. The difference between the third and the fifth is mostly whether the sum is done before the move rather than argued after it.
Frequently asked questions
Should we use gross margin or contribution margin? Contribution. Gross margin usually carries fixed production costs, which do not change with volume and overstate the breakeven for a rise. Use price less the costs that actually vary with each unit sold.
Does the breakeven change by segment? Yes, because margins do. Run it by segment and product, and the answer will often be to raise where margin is thin and volume is loyal, and hold where margin is fat and customers are switching.
Is a price rise that loses volume ever a good idea? Often. Losing the volume that earned the least, at a higher price on the rest, is how most businesses lift profit. The breakeven says how much of that volume you can afford to see go.
What about raising price on some customers and not others? The same arithmetic per customer or segment, with one addition. The customers who escaped the rise are the leakage the price waterfall measures, and they usually cost more than the ones who left.
How do I run this for my own numbers? The breakeven calculator takes a margin and a price change and returns the volume you can afford to lose, and the elasticity at which the move stops paying.
Check your pricing practices · The stages of excellence in pricing · Breakeven calculator