The price increase is not the decision: the threshold is
Comparing revenue before and after a price increase is not enough. The decision concerns a contribution or profit level to preserve over the same scope and period. Set the baseline, calculate the new unit contribution and identify the minimum volume compatible with that objective.
Unit contribution
Net unit selling price excluding tax, after discounts and rebates, minus unit variable cost.
Compensatory volume
Minimum volume required to preserve the chosen baseline contribution or profit.
Break-even units
Volume at which contribution covers relevant fixed costs and profit reaches zero.
Revenue, contribution and profit produce three answers
Break-even relies on contribution margin and fixed costs. The full OpenStax chapter sets out the unit calculation, while Bpifrance Création also distinguishes the profitability threshold from the date-based break-even point.
| Question | Formula | What the threshold protects |
|---|---|---|
| Unit contribution | Net price − unit variable cost | Economics of one unit |
| Break-even | Relevant fixed costs ÷ positive unit contribution, rounded up | Zero profit |
| Compensatory volume | Baseline total contribution ÷ new positive unit contribution, rounded up | Baseline contribution |
| Baseline profit | (Baseline contribution + new specific fixed cost) ÷ new unit contribution, rounded up | Profit after new spending |
Four scenarios reveal the tipping point
The baseline uses a €100 net price, €60 unit variable cost, 1,000 units and €25,000 of relevant fixed costs. Total contribution is €40,000 and profit is €15,000. After a price increase to €105, unit contribution rises to €45.
| Scenario | Price | Volume | Unit contribution | Total contribution | Profit |
|---|---|---|---|---|---|
| Baseline | €100 | 1,000 | €40 | €40,000 | €15,000 |
| Increase, 5% decline | €105 | 950 | €45 | €42,750 | €17,750 |
| Increase, 10% decline | €105 | 900 | €45 | €40,500 | €15,500 |
| Increase, 15% decline | €105 | 850 | €45 | €38,250 | €13,250 |
Break-even can reassure too early
At €105, break-even is €25,000 ÷ €45, or 556 units after rounding up. A 700-unit scenario remains profitable, yet its €31,500 contribution and €6,500 profit are far below baseline. Saying the increase works because break-even is passed confuses economic survival with value preservation.
556 units
profit is no longer negative.
889 units
baseline contribution is preserved.
956 units
baseline profit is preserved if the increase requires €3,000 of additional fixed cost.
Two assumptions can reverse the conclusion
The OpenStax sensitivity chapter shows why price, variable cost, fixed costs and volume should change separately. If variable cost rises from €60 to €63, new unit contribution falls to €42 and compensatory volume rises to 953 units. The 950-unit scenario no longer preserves contribution.
If the increase requires €3,000 of communication, activation or customer-support spending treated as a specific fixed cost, preserving €15,000 profit requires €43,000 of contribution. At €45 per unit, the threshold becomes 956 units.
Actual net price
Deduct discounts, rebates and promotional effects before calculating.
Complete variable cost
Include each cost induced by a sold unit once.
Specific fixed spending
Add it to the profit threshold without treating it as variable cost.
Mix and capacity
Check that volume is sellable, deliverable and comparable to baseline.
Post-increase volume must not be invented
Gerard Tellis’s meta-analysis gathers 367 elasticities from about 220 brands or markets, as stated on page 2 of the complete scientific PDF. It does not supply one universal elasticity for every decision.
The paper also shows that estimates differ by life cycle, category, method and country, while omitting distribution or quality can create severe bias. A credible price-volume curve therefore requires market-specific data, a test or explicit assumptions.
PepsiCo shows why aggregates require caution
Documented real case · financial year 2025
For 2025, the table in PepsiCo’s earnings release, page 14 reports total effective net pricing of +4%, organic volume of −2% and organic revenue growth of +2%. The SEC-filed annual report, page 51 repeats the same orders of magnitude.
Both documents note that the relationship between volume and revenue can differ because of product mix, nonconsolidated joint ventures and timing. The case supports a quantified price-volume bridge; it does not establish a clean causal elasticity or prove that pricing alone explains operating profit.
Mix turns assumptions into an auditable comparison
Mix structures price, volume, variable costs, fixed costs, promotions and results by Channel × Segment × Product niche. A committee can compare assumptions over the same scope and retrieve the inputs behind each margin, break-even and result.
Set the baseline
Period, niche, net price, volume, costs and result to preserve.
Enter scenarios
Prudent, central and favourable volume after the price increase.
Calculate thresholds
Break-even, compensatory volume and profit threshold with upward rounding.
Record assumptions
Source, owner, date, capacity and revision conditions in the decision file.
The decision concerns a zone, not one number
In the example, the price increase can be robust above 956 units, conditional between 889 and 955, and contribution-destructive below 889. The committee should therefore use a decision zone and revision signals: realised net price, rate of volume attrition, variable cost, support spending and competitor response.
Complete and verifiable sources
- Research and methodsTellis, The Price Elasticity of Selective DemandComplete scientific PDF, Journal of Marketing Research, 1988.↗
- Research and methodsOpenStax, Calculate a Break-Even Point in Units and DollarsComplete chapter on contribution margin and break-even.↗
- Research and methodsOpenStax, Perform Break-Even Sensitivity AnalysisComplete chapter on changing price, volume and cost.↗
- Research and methodsBpifrance Création, profitability threshold calculationComplete institutional page and distinction from the date-based break-even point.↗
- PepsiCo casePepsiCo 2025 fourth-quarter and full-year resultsComplete PDF, price-volume-revenue table on page 14.↗
- PepsiCo casePepsiCo 2025 annual report filed with the SECComplete PDF, table and methodological qualifications on page 51.↗