The idea
For a uniform price cut, extra volume needed to preserve total contribution equals d / (m - d), where d and m are discount and initial contribution-margin shares of the original price. This assumes constant variable cost per unit and m greater than d. At a 60% margin, a 10% cut needs 20% more volume. At a 40% margin, a 20% cut needs double the volume. Include capacity costs and losses on your other packs separately.
Use it thoughtfully
- Run the break-even formula on every proposed cut.
- Count only new volume, not trade-downs.
- Treat high-margin and low-margin packs differently.
An example
ILLUSTRATIVE EXAMPLE: A 20% price cut on a pack with a 40% margin needs volume to double just to keep the same profit. The team targets the discount instead.
A question to try
What extra volume would your next proposed discount need just to break even?
A useful framework is a starting point, not a guarantee. Effects vary with the audience, product and situation. Use truthful evidence, respect customer choice, and test the result.