Estimate the demand response to price
Price elasticity compares the percentage change in volume with the percentage change in price. Use it to estimate the volume trade-off, then calculate contribution with variable cost included.
Worked example
At ₹500, a service earns ₹200 per sale after variable costs. It sells 1,000 units. At ₹550, contribution rises to ₹250 per sale. It needs 800 sales to retain ₹2 lakh of total contribution if fixed costs stay constant.
Change the assumption
At ₹550, the business sells 760 units at ₹250 contribution each. How does that compare with the old price?
Check the reasoning
Contribution is ₹1.9 lakh, ₹10,000 below the old total. The higher price needed 800 sales. Check whether the volume loss was caused by the price or another change.
Check your reasoning
What would make a before-and-after price test misleading?
Reveal the explanation
A seasonality shift, a rival’s promotion or a change in customer mix. Compare matched segments or randomise a small set of comparable customers where feasible.
Try the same framework in a different case
Explore worked stories in the reading room · Practise the next analysis