Relationship between Price and Volume

Sales Units Needed to Keep Contribution Constant

After a Price Change

QO
QN =
P%
1+ 1 – (VC / PO)
Where:
QN = the new unit quantity needed after a price change to
produce the same total contribution as before the price
change
QO = the old unit quantity before the price change

P% = the price change expressed as a percentage (PN – P0) / P0

PN = the new price per unit
PO = the old price per unit
VC = the variable cost per unit
 Always Think About Pushing
80%
Price!!!
Decrease in Volume that
70% Maintains Total Contribution

60% Price
Increase
50% Modest price increases
is ok provided volume 0.30%
40% loss < 10% 1.00%
3.00%
30%

20%

10%

0%
99

98

97

96

95

92

75

65

55
94

93

91

85
9

5
0.

0.

0.

0.

0.
0.

0.

0.

0.

0.

0.

0.

0.

0.

0.

0.
0.

0.

Highly Commoditized Highly Profitable Businesses

VC to PO Ratio Note: According to Robert Dolan, a 1% price increase leads to
a 2% reduction in volume on average. HBR Sept Oct 9f5.