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Business Glossary
How to Calculate the Impact of a Price Increase
Understanding the revenue and profit impact of a price increase before implementing it is essential commercial discipline. Modelling both margin improvement and expected volume change shows the true net impact.
The Formula
Net Profit Impact = (New Contribution Margin × New Volume) − (Old Contribution Margin × Old Volume)
Worked Example — UK SME
A business sells 4,000 units at £45, gross margin 38%. A 6% price increase to £47.70 causes 8% volume decline to 3,680 units. Old gross profit: £68,400. New gross profit: £68,813. Gross profit increases despite lower revenue.
UK Benchmark
📊 Price increases almost always improve profitability more than revenue figures suggest. At 35–40% gross margin, a 5% price increase with 10% volume loss still generates more gross profit than the status quo.
Common Questions
How much volume can I lose before a price increase becomes unprofitable?
At 35% gross margin, a 5% increase becomes unprofitable only if volume falls more than 12.5%. In practice, most UK B2B price increases cause far less churn than expected.
When is the best time for a UK price increase?
Annual increases in January aligned with NLW are easiest to justify. Give 30 days notice for B2B customers. Don’t apologise excessively — it invites negotiation.
How should I communicate a price increase?
Be direct and brief. Cite specific cost pressures. Give adequate notice. Offer a brief window to order at old prices for loyal customers.
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