The Impact of Increasing Price on Profits

Lets examine the impact of increasing your prices.
You may find the benefits of a price increase far outweigh the risks of losing customers.


Lets start with a break even example:
Sales of $ 1,000,000   (-)   COGS $ 650,000   =   Gross Margin of $ 350,000
Fixed expenses of $ 200,000   +   Variable expenses $ 150,000     =   Total expenses of $ 350,000
Therefore Net Profit /Loss   =   $ 0


Using the same example we now increase prices by 10%:
Sales of $ 1,100,000   (-)   COGS $ 650,000   =   Gross Margin of $ 450,000
Fixed expenses of $ 200,000  +   Variable expenses $ 150,000    =    Total expenses of $ 350,000
Therefore Net Profit   =   $ 100,000


But how much business can we afford to lose before we are back at break even? Can you believe that a 10% price increase means you can do a third less sales and still be in the same place. Take a look at the calculation below. 
Sales of $ 733,333   (-)   COGS $ 433,333   =   Gross Margin of $ 300,000
Fixed expenses of $ 200,000   +   Variable expenses $ 300,000   =   Total expenses of $ 500,000
Therefore Net Profit /Loss   =   $ 0


In summary; if you increase your prices by 10% you can afford to lose up top 33% of your sales before you go backwards.
Need help with your pricing strategy? Make sure you talk to the business growth specialists at Emanation