Revenue can rise while profit gets worse. This guide helps you calculate what a product or service really contributes after direct costs and labour, measure how input costs have changed, test candidate prices and model what happens if volume falls after a price increase. Make the pricing decision from unit economics rather than guesswork.

The problem

A price increase should not start with 'what percentage can I get away with?' It should start with the economics of the sale. A business can grow revenue while contribution falls if labour, stock, delivery or other variable costs rise faster than price.

1. Pick one offer

Audit one product, service or package at a time. Record current selling price and normal sales volume.

2. Calculate direct cost

Include the costs caused by the sale: stock or materials, fulfilment, transaction fees, commissions, subcontractors and direct labour.

3. Calculate contribution

Selling price minus variable/direct cost gives contribution. Divide contribution by selling price to calculate contribution margin percentage.

4. Measure what changed

Compare today's supplier, wage, delivery and platform costs with the point when the current price was set.

5. Test candidate prices

Recalculate contribution at several possible prices. Then test what happens to total contribution if volume falls 5%, 10% or 20%.

6. Decide how to change the offer

The answer may be a higher price, smaller package, minimum order/project value, removal of unprofitable extras or stopping the offer entirely.

What to do next

Use the Margin & Price-Increase Audit to work through the decision. For businesses where profitability depends heavily on route/customer/job economics, link through to the JEBS Freight & Logistics Profitability Model.

Before You Raise Prices: Calculate What Each Sale Is Actually Making You