Business Glossary
What Is Price Elasticity?
Price elasticity measures how much customer demand changes in response to a price change. A highly elastic product sees significant volume drops when prices rise. An inelastic product retains most volume even after increases.
The Formula
Price Elasticity = % Change in Quantity Demanded ÷ % Change in Price
Worked Example — UK SME
A UK B2B supplier raises prices 5%. Volume falls from 1,200 to 1,128 units (-6%). Price elasticity = -6% ÷ 5% = -1.2. Demand is moderately elastic. A 5% price increase still improves gross profit at this level of elasticity.
UK Benchmark
📊 Most B2B products in the UK have lower price elasticity than business owners assume. UK SMEs lose less than 10% of customers after a 5% price increase on average — but only 30% of SMEs implement annual price increases.
Common Questions
When is demand more inelastic?
When you have genuine differentiation, high switching costs, the purchase is small relative to the buyer’s budget, or you are the only credible supplier.
How do I test price elasticity?
Run a controlled test: increase prices on a subset of products by 5–10% and measure volume change over 90 days. Most business owners discover their products are far more inelastic than they feared.
What if price elasticity is high in my market?
Focus on reducing direct costs to maintain margin, improve perceived value to reduce elasticity, or target customer segments that are less price-sensitive.
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