How much sales can you lose after a price increase?

Start with contribution, not revenue

A higher price can improve profit even if some customers leave, but revenue alone does not reveal the safe limit. The useful comparison is contribution: selling price minus the variable costs caused by one more sale. Contribution pays fixed costs first and becomes profit only after those fixed costs are covered.

Suppose a service sells 1,000 times at £50 and costs £25 to fulfil each sale. Contribution is £25,000 before fixed costs. A 10% increase moves the price to £55 and contribution per sale to £30, assuming the variable cost remains £25.

Calculate the profit-neutral volume

Divide the old total contribution by the new contribution per sale. In the example, £25,000 divided by £30 is about 834 sales. The business could therefore lose roughly 166 of its 1,000 sales, or 16.6%, before contribution falls below the previous level.

That 16.6% is a boundary, not a forecast. Use the Price Increase Calculator to compare the current plan, the proposed price and a realistic volume response. Then test a cautious downside case rather than assuming demand stays unchanged.

• Keep the time period consistent across price, sales volume and fixed costs.
• Include payment fees, commissions, delivery and other genuinely variable costs.
• Model customer or product groups separately when their economics differ.

Check the customer price, including VAT

For consumer-facing offers, compare the amount the customer will actually pay. GOV.UK says prices aimed at the general public show VAT-inclusive amounts, while business-only prices do not usually include VAT and charge it on top. A VAT-registered business must use the correct VAT rate and show the required VAT information on invoices.

A net price increase can look different once VAT is added. If the example price is net and standard-rated, £55 becomes £66 including 20% VAT. Test customer reaction against the visible £66 price, not only the £55 net revenue figure.

Make every mandatory charge visible

The CMA's current price-transparency guidance says traders should provide total prices up front and include unavoidable fees, taxes and charges. Do not present an attractive headline price and reveal a mandatory charge later in the purchase journey.

If delivery or another charge cannot be calculated in advance, the CMA says customers need enough prominent information to calculate the total. Review the website, proposal, checkout, invoice and renewal message together so the price remains consistent throughout the journey.

Choose a test you can reverse

Before changing every price, identify a defensible test group: a new-customer cohort, a product line, a geographic area or a renewal window where contracts and notice requirements permit it. Record the old contribution, conversion rate, units sold, discounts, cancellations and support workload before the test begins.

Set a review date and a stop condition. If the new price increases contribution but produces damaging churn, complaints or cash timing, the arithmetic has exposed only part of the decision. Do not change a price during checkout or create artificial urgency; the CMA recommends transparency where prices can change.

Turn the result into a communication plan

Explain what is changing, the effective date, which products or customers are affected, whether the quoted amount includes VAT, and any action the customer needs to take. Avoid vague claims about value that the business cannot support.

Use the free price-increase communication pack for a structured customer message, then place the base and downside scenarios in the cash-flow forecast. This guide and calculator support planning; they do not replace legal, tax or contractual advice for a specific price change.

Official sources

• CMA: Providing clear and accurate information about prices
• GOV.UK: Where you see VAT
• GOV.UK: Charging VAT
• CMA: Dynamic pricing tips for businesses