Quantity −8%, price +5%, elasticity −1.6—do we keep the increase?
Model contribution. Merkur Trade kept contract tier, rolled back spot 2% because −1.6 eroded gross contribution EUR 4,100.
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Price Elasticity
Price Elasticity: plain-English definition, formula, worked example, how to interpret the result, peer-based benchmark guidance, common mistakes, and management actions in the ZBI Business Control Library.
What is Price Elasticity?
Price elasticity of demand is the ratio of percent change in quantity sold to percent change in price—how volume moves when you move price. Elasticity below −1 means volume drops faster than price rises (elastic); above −1 means volume is relatively sticky (inelastic). Merkur Trade tested a 5% price increase on a bearing family and saw quantity fall 8%—elasticity = −8% ÷ +5% = −1.6. I use elasticity in price committee before approving list changes because revenue can rise on a 5% increase while contribution falls when volume drops 8% on a 28% margin SKU.
Why Price Elasticity matters
Pricing without elasticity is guessing which customers leave quietly. At −1.6, Merkur Trade's 5% price move lost more volume than the price gain recovered—contribution dollars fell on the bearing family even though invoice ASP rose. Sales reps feel elasticity as lost quotes to discounters; finance feels it as revenue up and margin down on the same dashboard. Contract customers with annual indexes behave differently from spot buyers—one blended elasticity number hides that spot elasticity was −2.2 while contract held at −0.4. Get elasticity wrong and you train the market to wait for the next promo.
Formula and variables
Price Elasticity = % Change in Quantity ÷ % Change in Price
% change in quantity — change in units sold versus baseline period (same scope).
% change in price — change in average realized price versus baseline (use net price, not list).
Excel: =IFERROR(B2/B3,0)
Real business example
Merkur Trade raises list price 5% on SKU family H-440 bearings effective April 1. Baseline March: 2,400 units at net ASP EUR 22. April-May average: 2,208 units (−8% quantity); net ASP EUR 23.10 (+5% price). Price elasticity = −8% ÷ +5% = −1.6 (elastic demand). Contribution modeling: at 28% margin and −8% volume, gross contribution falls EUR 4,100 versus pre-increase run rate despite higher ASP. Commercial director holds the increase on contract tier but rolls back spot list 2% on the family.
How to interpret the result
Elasticity sign is usually negative—magnitude above 1 means demand is price-sensitive.
- −1.6 means a 5% price rise drove 8% volume loss—elastic; contribution likely fell unless margin was very thin.
- Segment contract, spot, and channel before one elasticity drives a global list change.
- Short promo windows distort elasticity—use six months or a controlled test window.
- Model contribution dollars, not revenue alone, when elasticity is below −1.
Benchmark context
Industrial MRO often shows −0.8 to −1.5 on commoditized lines and −0.3 to −0.6 on sole-source service parts—Merkur Trade's −1.6 on bearings signals competitive substitution available. Compare to your own prior price tests, not textbook −1. Update elasticity memo after major competitor price moves or when a key account switches supplier.
Red flags
- Elasticity below −1.5 on a core SKU family—contribution falls on typical price increases.
- Price up 5% with quantity down 8% but sales still bonuses on revenue—margin destruction incentivized.
- Elasticity never updated after competitor opened regional DC—assumptions from 2023 price test.
- Blended elasticity hides spot at −2.2—list increase protects contract and destroys spot share.
- Quantity down 8% attributed to 'market softness' without price correlation analysis.
Common mistakes
- Using list price change while net price moved less because of discount creep.
- Measuring quantity change over a promo period that overlapped the price move.
- One elasticity for all customers when contract and spot behave differently.
- Ignoring cross-elasticity—raising family H-440 pushed volume to a lower-margin substitute.
- Declaring inelastic after one month—seasonal demand masks true response.
What should management do next?
- Segment elasticity analysis—contract, spot, channel—before price moves.
- Require six-month data or controlled test before structural price change.
- Model contribution dollars, not revenue, for elastic/inelastic decision.
- Update elasticity memo after major competitor price action.
- Assign revenue management owner to publish elasticity assumptions in price committee.
Related calculators
Related analyzers
Related templates & software
Related KPI pages
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FAQ
How much data do we need before a list change?
Six months same-SKU history or a controlled A/B on one region. One promo month is not enough.
Elastic versus inelastic—in plain terms?
Below −1 elastic: volume moves more than price. Above −1 inelastic: volume sticky. −1.6 is clearly elastic.
Do we include lost quotes in quantity change?
Yes where CRM captures them—volume drop from price often shows in win rate before invoice volume.
Who owns elasticity in the organization?
Revenue management or commercial analytics publishes assumptions; sales input on account risk; finance signs contribution model.
Summary
Price elasticity links price moves to volume response. At −1.6, a 5% rise with 8% volume loss is elastic—model contribution by segment before the next list change, not revenue alone.
Reviewed by ZBI Business Control Library · Last updated 2026-06-15