An illustrative pricing story
Raise prices. Lose sales.
Keep the same profit?
In the starting example, a 10% price rise can absorb a 16.7% fall in units sold and still preserve operating profit. Protecting revenue is the stricter test.
This assumes variable cost per unit and total fixed costs do not change.
The starting example: sell 100 drinks for EUR 5 each, with EUR 2.50 variable cost per drink. The remaining EUR 2.50 contributes to fixed costs and profit. Charge EUR 5.50, and that contribution becomes EUR 3. You need fewer sales to earn the same total contribution.
Share of the original price left after variable costs, not net profit margin.
Two different limits.
Maximum fall in units sold while preserving the original total:
Bars share a 0–100% scale. *Only if total fixed costs stay unchanged.
About 83 sales can do the work of 100.
Each mark represents one of the original 100 units. Display is rounded; calculations use fractional units.
The question before the price rise.
How much volume would you actually lose?
The maths gives you a boundary, not a forecast. Measure the sales response with a credible comparison or a carefully designed test. A busier week, a competitor closing or a menu change can disguise the effect of price.
A higher contribution margin gives you less room to lose volume for the same percentage price rise. When variable costs are low, losing a sale gives up more contribution.
Lose less volume than the contribution limit: operating profit rises. At the limit: it stays the same. Lose more: it falls.
These comparisons require unchanged variable cost per unit and total fixed costs. Preserving profit can also mean preserving an existing loss.
The calculation and its limits
Let r be the proportional price rise and m the original contribution margin ratio. Revenue-preserving volume loss is r / (1 + r). Contribution-preserving volume loss is r / (m + r), found by equating old and new price-minus-variable-cost totals.
All prices and costs exclude VAT. Variable cost per unit and total fixed costs stay unchanged. This is a single-product model: no change in mix, refunds, quality, capacity, fees or customer lifetime value. Fixed costs cancel when comparing operating profit, but this does not show whether either scenario is profitable. Units sold are not unique customers. This is not an estimate of price elasticity or a recommended price.
Defaults are invented for explanation, not Leuven café observations. Source for the underlying accounting definition: OpenStax: contribution margin. Calculations and presentation are original.