Price Elasticity Revenue Simulator
Simulate revenue impact of price changes using demand elasticity. Enter values for instant results with step-by-step formulas.
Formula
Revenue Change = f(Price Change, Elasticity); % ΔQ = E × % ΔP
Worked Examples
Example 1: Elastic Product - Software Subscription
Problem:SaaS product: $50/month, 1,000 subscribers, elasticity = -2.0. What happens with 10% price increase?
Solution:Current state:\nPrice: $50, Quantity: 1,000\nRevenue: $50 × 1,000 = $50,000/month\n\nWith 10% price increase:\nNew price: $50 × 1.10 = $55\nQuantity change: -2.0 × 10% = -20%\nNew quantity: 1,000 × 0.80 = 800\n\nNew revenue: $55 × 800 = $44,000/month\n\nRevenue change: -$6,000 (-12%)\n\nAnalysis:\nElastic demand means price increase backfires!\nLost 200 subscribers × $55 = $11,000 potential\nGained $5 × 800 = $4,000 from remaining\nNet effect: significant revenue loss\n\nRecommendation: Don't raise price. Consider lowering price to gain subscribers.
Result:Revenue drops 12% ($6K/mo loss) | Elastic demand penalizes price increases
Example 2: Inelastic Product - Prescription Medication
Problem:Essential medication: $100/bottle, 500 patients, elasticity = -0.3. 15% price increase analysis.
Solution:Current state:\nPrice: $100, Quantity: 500\nRevenue: $100 × 500 = $50,000/month\n\nWith 15% price increase:\nNew price: $100 × 1.15 = $115\nQuantity change: -0.3 × 15% = -4.5%\nNew quantity: 500 × 0.955 = 478\n\nNew revenue: $115 × 478 = $54,970/month\n\nRevenue change: +$4,970 (+9.9%)\n\nAnalysis:\nInelastic demand—patients need medication regardless of price.\nLost only 22 patients (4.5%)\nGained $15 × 478 = $7,170 from remaining\nNet effect: substantial revenue increase\n\nEthical note: This illustrates why pharmaceutical pricing is regulated/debated. Economic incentives favor high prices for inelastic necessities.
Result:Revenue increases 10% ($5K/mo gain) | Inelastic demand allows price increases
Example 3: Near-Unitary Elasticity
Problem:Clothing brand: $80 average item, 2,000 units/month, elasticity = -1.1. What's the revenue effect of 5% discount?
Solution:Current state:\nPrice: $80, Quantity: 2,000\nRevenue: $80 × 2,000 = $160,000/month\n\nWith 5% price decrease:\nNew price: $80 × 0.95 = $76\nQuantity change: -1.1 × (-5%) = +5.5%\nNew quantity: 2,000 × 1.055 = 2,110\n\nNew revenue: $76 × 2,110 = $160,360/month\n\nRevenue change: +$360 (+0.2%)\n\nAnalysis:\nNear-unitary elasticity means revenue barely changes!\nLost $4 × 2,000 = $8,000 from price drop\nGained $76 × 110 = $8,360 from new sales\nAlmost exactly offset.\n\nWith unitary elasticity (E = -1.0), revenue would be identical at any price. Near-unitary means small revenue sensitivity to price.
Result:Revenue nearly unchanged (+0.2%) | Unitary elasticity = price doesn't affect revenue much
Frequently Asked Questions
What is price elasticity of demand?
Price elasticity measures how quantity demanded changes when price changes. Formula: % change in quantity / % change in price. Elasticity of -2 means 10% price increase causes 20% quantity decrease. Most products have negative elasticity (higher price = lower demand). Magnitude indicates sensitivity.
How do I estimate my product's elasticity?
Methods: 1) Historical data—analyze past price changes vs sales, 2) A/B testing—different prices to different segments, 3) Surveys—stated preference (less reliable), 4) Competitor analysis—observe competitor price changes. Start with industry benchmarks, then refine with your data.
Why does elasticity affect revenue direction?
Revenue = Price × Quantity. If price increases and quantity drops, revenue could go either way. For elastic demand, quantity drops more than price rises, so revenue falls. For inelastic demand, quantity drops less than price rises, so revenue increases. Elasticity determines which effect dominates.
What factors affect price elasticity?
Factors increasing elasticity (more sensitive): many substitutes, luxury items, large portion of budget, long time horizon. Factors decreasing elasticity (less sensitive): few substitutes, necessities, small portion of budget, short time horizon, brand loyalty, switching costs.