Price Elasticity

Price elasticity measures how demand responds to price changes — calculated as % change in quantity divided by % change in price. Use this calculator to evaluate pricing tests, understand sensitivity (elastic vs. inelastic), and estimate how revenue shifts when prices move.

What is price elasticity?

Price elasticity of demand indicates how sensitive buyers are to price changes. If elasticity magnitude is greater than 1, demand is considered elastic (quantity moves more than price). If it's less than 1, demand is inelastic.

How to calculate

Compute percentage changes for price and quantity from a baseline to a new scenario, then divide quantity change by price change. For example, a 25.00% price change and a -20.00% quantity change yields elasticity -0.80.

Why it matters

Understanding elasticity helps set prices that optimize revenue and profit by balancing margin and volume.

How to use this calculator

Enter a baseline price and quantity alongside a new price and quantity based on research or tests. The tool computes elasticity, classifies sensitivity (elastic, unit elastic, inelastic), and shows revenue impact so you can evaluate price moves.

Example

Suppose price increases from $20 to $25 (+25%) and quantity falls from 1,000 to 800 (−20%). Elasticity = −20% ÷ 25% = −0.80, indicating inelastic demand. Revenue changes from $20,000 to $20,000 — flat despite a higher price, due to lower volume.

Assumptions & limitations

Elasticity often varies by segment, channel, and time. This simple point estimate uses two scenarios; real demand curves may be non‑linear and influenced by competition, substitutes, and seasonality.

Best practices

Run A/B price tests, segment customers by value, and analyze cross‑elasticity for bundles or tiers. Pair elasticity analysis with contribution margin to avoid chasing volume at the expense of profit.

Arc vs. point elasticity

Point elasticity uses two specific points; arc (midpoint) elasticity averages changes between points to reduce bias from base selection. For small changes, both are similar; for larger changes, arc is often preferred.

Benchmarks

Many B2B SaaS products exhibit inelastic demand near list price (|E| < 1), especially for essential workflows. Consumer goods often show more elastic behavior, and promos can temporarily increase elasticity.

Revenue vs. profit

A price increase may raise revenue with inelastic demand, but margins and churn risk also matter. Combine elasticity with contribution margin and retention data before making large changes.

Pricing psychology

Charm pricing (e.g., $29 vs. $30), anchoring via tier ladders, and bundling can shift perceived value and effective elasticity without changing cost structure.

Step‑by‑step check

Compute %ΔP and %ΔQ, then divide to get elasticity. Classify sensitivity, compare baseline vs. new revenue, and assess profit impact before rollout.