Nasr Khan

04 Pricing

Price increase break-even

How many customers can we lose before a price increase stops paying off?

For CEOs and CFOs. Takes about two minutes. Opens with example numbers.

Your numbers

1Today
$
75%

Revenue minus the variable cost of serving a customer, as a share of revenue.

2The increase
10%

New price: $495 a month

100%

Lower it if you protect some accounts, or raise prices only at renewal this year.

3How customers react
4%

Share of the customers who get the new price.

5%
70%
4Timing
When the new price applies

At renewal, customers renewing during the notice keep today's price until their next renewal.

The answer

0%

Break-even loss

0%

Your estimate

0

Room to spare

+$0a month from customers who stay and pay more
−$0a month lost to customers who leave or downgrade

Gross profit change as more customers leave

Monthly gross profitMonthly revenue

Before and after, at your estimate

Per monthTodayAfterChange

The first year

Break-even loss for other increases

The share of customers you can lose before gross profit falls, by size of increase and gross margin. Downgrades as you set them. Your case is circled.

Take the result with you

A PDF report with your inputs, results, charts and method. Or the same as plain text for an email.

How this tool works

What it does

It works out how many customers you can lose after a price increase before gross profit falls. It weighs the extra margin from customers who stay against the margin you lose from customers who leave or move to a cheaper plan.

Use it before you announce an increase, to set a limit on acceptable losses. Use it again after a quarter, with your real losses.

What you enter

  • Customers and average price. Today's paying customers and what one pays per month on average.
  • Gross margin. Revenue minus the variable cost of serving a customer. Hosting, support and payment fees count. Salaries of the product team usually don't.
  • Price increase and who gets it. The rise in percent, and the share of customers it applies to.
  • Expected reaction. Your estimate of customers who leave, and of those who stay on a cheaper plan.

What you get

  • Break-even loss. The share of affected customers you can lose before monthly gross profit drops below today's.
  • The balance. Monthly gain from customers who pay more, against monthly loss from those who leave or downgrade. The beam tips toward the bigger side.
  • The chart. Gross profit and revenue change across 0 to 40% of customers lost. The marked points show break-even and your estimate.
  • Minimum increase. The smallest increase that still adds gross profit at your expected losses.

The maths, assumptions and sources

Gross profit per customer is price × gross margin. After an increase of p, a customer who stays brings price × (gross margin + p), because variable cost doesn't change. With no downgrades, break-even loss = p ÷ (gross margin + p). So a 10% increase at a 75% gross margin breaks even at 11.8% of customers lost. Downgrades lower that limit.

The tool assumes variable cost per customer stays the same for customers on the cheaper plan, and that customers who leave are gone for the full year. It doesn't model any change in how many new customers you win at the higher price.

  • Marn, M. and Rosiello, R. (1992). Managing Price, Gaining Profit. Harvard Business Review. Across 2,463 companies, a 1% price improvement with no volume loss lifted operating profit by 11.1%.
  • Break-even volume after a price change: % change in volume = −price change ÷ (contribution margin + price change). See Impact Pricing.
See answer