Price increase calculator

How the sums work

Your overheads (rent, wages, insurance) stay the same whether you raise prices or not, so what changes is the profit on each sale: your price less what that sale costs you to deliver.

• Raising prices: at a 40% margin, a 10% increase lifts the profit on each sale from 40% of the old price to 50%. You could lose 10 / 50, or 20%, of your sales and still make the same profit.
• Discounting: the same 10% taken off leaves 30%. You'd need 10 / 30, or 33% more sales, just to stay even. A discount as big as your margin loses money on every sale.

The lower your margin, the more a discount costs and the more a price rise is worth, which is why low-margin businesses feel price changes most.

When customers notice a price change

How much a price change moves your sales depends on what you sell. People shop around less for things that are urgent, hard to compare or tied to trust (an emergency repair, a specialist, a service they've used for years) than for things they can compare line by line online. That's why the calculator asks for your own best guess: you know your customers better than any average.

Raising prices without losing customers

• Tell existing customers before it happens, and why: costs, better service, more time on each job.
• Show what they get: reviews, guarantees, response times and results make a price easier to accept.
• Raise prices on new customers first, and on your most popular service last, if you want to test the waters.
• Review prices once a year, in small steps, rather than one big jump after years of none. As Business Queensland puts it, "it's much easier to lower prices than to raise them", so choose a new price you can hold.

How to calculate a percentage increase

A percentage increase compares the change in price with where it started. The formula is: (new price less old price) divided by old price, times 100.

Say a dog groomer in South Melbourne moves a full groom from $80 to $88. The change is $8, and $8 divided by $80 is 0.1, so the price has gone up 10%.

Finding the new price

To raise a price by a set percentage, multiply it by one plus the percentage as a decimal. A 10% increase on $80 is $80 times 1.1, or $88. A 7.5% increase is $80 times 1.075, or $86.

Finding the old price

To work back from a new price, divide it by one plus the percentage. If a $132 price already includes a 10% increase, the old price was $132 divided by 1.1, or $120. Taking 10% off $132 would give $118.80, which undershoots.

How to calculate a percentage of a number

Multiply the number by the percentage, then divide by 100. 15% of $240 is 240 times 15, divided by 100, or $36.

A quick way to do it in your head: 10% is the number with the decimal point moved one place left ($24), and 5% is half of that ($12). Add them and 15% is $36.

Percentage decrease and discounts

A percentage decrease uses the same formula from the other side: (old price less new price) divided by old price, times 100. A $120 service sold for $96 has a 20% discount, because $24 divided by $120 is 0.2.

Rises and falls each work off a different starting price, so the same percentage up and down leaves you behind. Raise $100 by 10% and you get $110; take 10% off $110 and you land on $99. To undo a 20% discount you need a 25% increase, because the 20% came off the bigger number.

Price rises that compound

Small yearly rises build on each other, the same way compound interest does. Three rises of 5% take a $100 price to $115.76, a 15.8% increase in total, because each rise applies to the price after the last one.

That's one reason a steady yearly review is easier on customers than one big catch-up. When you explain a rise, the ABS Consumer Price Index is a useful reference point for how prices across the economy have moved.

The formula behind the calculator

The calculator turns your margin and your price change into one percentage: how far your sales can move before your gross profit changes.

• After a price rise: sales you could lose = increase divided by (margin plus increase). At a 30% margin, a 5% rise means you could lose 5 / 35, or 14.3%, of your sales and still make the same profit.
• After a discount: extra sales you'd need = discount divided by (margin less discount). At a 30% margin, a 5% discount needs 5 / 25, or 20%, more sales to stay even.

Both work in percentages of the old price, so put your margin in as a percentage of your current price, before GST.

Why use a price increase calculator?

Percentage maths for pricing is easy to get wrong in your head. A 10% rise feels like it should cover a 10% drop in customers, yet at a 40% margin you could lose twice that and still come out even. A calculator does the sums the same way every time, so you can try a few percentage changes in a minute and see the profit in dollars, a month and a year.

It's also a useful way to start a pricing conversation with a business partner or accountant, because everyone is looking at the same numbers.

Related tools

• Margin and markup calculator: find your margin from a cost and a price, or the price you need for the margin you want. Use it to get the margin percentage for this calculator.
• Cost per lead calculator: see how much of your new margin you can spend on ads to win each customer.

What does a 10% price rise look like in practice?

Here's a made-up example. Say a dog groomer in South Melbourne charges $80 for a full groom and does 200 grooms a month. Each groom costs $48 in wages, products and card fees, a 40% margin, so the grooms bring in $6,400 of gross profit a month.

Lifting the price 10% to $88 raises the profit on each groom from $32 to $40. To make the same $6,400, the groomer now needs 160 grooms. They could lose 40 grooms a month, 20% of the work, and still be no worse off. That matches the calculator: 10 divided by (40 plus 10) is 20%.

If only 10 customers leave, the groomer does 190 grooms at $40 and makes $7,600, which is $1,200 more each month. Run it the other way and a 10% discount to $72 cuts the profit per groom to $24, so the groomer would need about 267 grooms, a third more work, just to stand still.