Reference
Price-rise breakeven: how much volume can you afford to lose?
At a 30% contribution margin, a 5% price increase breaks even if volume falls by about 14.3%. That threshold holds contribution constant under the assumptions below. It does not predict customer response.
Use the breakeven calculator, or follow the worked example. The calculator rounds this threshold to 14.3%.
What the breakeven measures
Contribution is revenue less the costs that vary with units sold. Contribution margin expresses that amount as a share of the original selling price. Fixed costs stay unchanged in this calculation.
The threshold compares total contribution before and after one uniform price increase. It assumes every unit receives the increase immediately. The first-year revenue example handles exemptions, delay and concessions separately.
Formula and units
Let p be the price increase divided by the original price. Let m be the contribution margin at that original price. Both are fractions: 5% becomes 0.05 and 30% becomes 0.30.
Let L be the share of original volume lost. For a positive price increase and positive starting contribution margin:
L = p / (m + p)
L is a positive loss threshold. The corresponding signed volume change is −p / (m + p). The table below uses signed changes, so a permitted fall carries a minus sign.
Worked example: price A$100, variable cost A$70
These figures are invented for illustration. Unit variable cost stays at A$70 throughout.
- Original selling price: A$100. Contribution per unit: A$100 − A$70 = A$30. Original contribution margin: A$30 / A$100 = 30%.
- Original volume: 1,000 units. Total contribution: 1,000 × A$30 = A$30,000.
- New selling price after a 5% increase: A$105. Contribution per unit: A$105 − A$70 = A$35.
- Volume needed to preserve A$30,000 contribution: A$30,000 / A$35 = 857.1429 units.
- Volume loss threshold: (1,000 − 857.1429) / 1,000 = 14.2857%, rounded.
The same answer follows from 0.05 / (0.30 + 0.05). Whole units require at least 858 remaining from the original 1,000. At 857 units, contribution would be A$29,995.
The new contribution margin is A$35 / A$105, or about 33.33%. Keep the original 30% margin in the breakeven formula.
Why the formula works
Take the original selling price as one unit of money. Original contribution per unit is m. After the increase, contribution per unit is m + p because unit variable cost stays fixed.
Holding total contribution constant gives:
(1 − L) × (m + p) = m
L = 1 − m / (m + p)
L = p / (m + p)
The formula compares contribution, rather than revenue. The A$27,000 first-year revenue scenario answers a different question. Its 2.7% revenue result is not a uniform price increase to enter here.
Exemptions and delay change the comparison
These figures are invented for illustration. Assume annual revenue of A$1 million and a 30% starting contribution margin. A 5% increase applies to 80% of revenue, starts three months late, and gives back 10% of the increase in concessions.
The retained increase on eligible sales is 5% × 90%, or 4.5%. Over a full year, eligible revenue of A$800,000 would gain A$36,000 before any volume or mix change. At the same 30% original contribution margin, a uniform 4.5% increase has a 13.04% volume-loss threshold for that eligible group.
The actual first-year revenue calculation applies the increase for nine months. Its gain is A$36,000 × 9 / 12, or A$27,000, before any volume or mix change. That is 2.7% of the original A$1 million revenue.
The 13.04% threshold belongs to the eligible group under a full-year uniform increase. It does not describe a uniform increase across the whole first year. Exempt sales and delayed months require separate contribution analysis. Neither calculation forecasts demand.
The table by margin
The table shows how the threshold varies with the starting margin and price change. 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% |
| Contribution margin | |
|---|---|
| 20% | −20% |
| 30% | −14% |
| 40% | −11% |
| 50% | −9% |
| Contribution margin | |
|---|---|
| 20% | 33% |
| 30% | 20% |
| 40% | 14% |
| 50% | 11% |
Read up from your margin. The gap between the two lines is why a cut needs so much more volume than a rise can lose.
Read across a row using signed volume changes. A negative figure is a fall from original volume. A positive figure is the extra volume a price cut needs. For a cut, the reduced price must still exceed unit variable cost.
Compare the threshold with expected customer response
The breakeven states the volume change that preserves contribution. Estimating the response requires customer or market evidence. The price elasticity explanation covers that separate question.
Compare both on the same product group, period and price basis. A volume estimate that includes a changed product mix needs further analysis.
Assumptions and limits
The calculation assumes one uniform increase across all exposed volume. It takes effect immediately. Unit variable cost, product mix and fixed costs stay unchanged.
Apply the calculation separately where customers receive different increases. Contract exemptions and delayed starts need analysis by segment or period. Concessions can also change the price the business keeps.
Competitor responses and customer demand are outside the formula. A change in capacity costs can change the decision. The threshold follows from these assumptions. Actual customer response needs separate evidence.
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 supplies one part of a price-move model. The decision also needs an estimate of customer response and a record of what happens afterwards.
Frequently asked questions
Should we use gross margin or contribution margin? Use contribution margin from the costs that vary with units sold. An accounting gross margin may include fixed costs or omit other variable costs. Check its cost basis before using it.
Which contribution margin belongs in the formula? The margin at the original selling price. In the worked example, use 30%, even though the new margin is about 33.33%.
Does the result predict lost sales? No. It states the loss that would preserve contribution under the stated assumptions. Customer response needs separate evidence.
Can I use the first-year revenue result as the price increase? No. The revenue scenario combines exemptions, timing and concessions. Analyse the affected segments and periods before comparing contribution.
How do I run my own figures? The breakeven calculator takes a contribution margin and price change. The decision sheet shows the separate first-year revenue scenario.
Calculation and corrections
Published by onestepright. Worked calculation checked 31 October 2026 against the calculator's arithmetic. The inputs are invented for illustration.
Responsibility and method
Responsible author: Andrew Wilson. Publisher: onestepright.
Substantive update: . The calculations use invented figures and the stated contribution assumptions.