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Direct answers
- What is price-volume-margin (cost-volume-profit) analysis?
- Cost-volume-profit (CVP) analysis links your selling price, your sales volume and your contribution margin to profit. It answers practical pricing questions, above all: if I change my price, how much volume can I afford to lose or must I gain to end up with the same profit? For hospitality, where a price rise can scare off some customers, this is exactly the trade-off you need to quantify before acting.
- What is the break-even volume after a price change?
- When you raise the price, the contribution margin per cover increases, so you need fewer covers to make the same total contribution. The break-even (indifference) volume is the number of covers at the new price that produces the same total contribution as before. It equals the old contribution per unit times old volume, divided by the new contribution per unit. Below that volume you are worse off; above it, better off.
- How many customers can I afford to lose after a price rise?
- The maximum tolerable drop is (old volume - break-even volume) / old volume. In the worked example a 5% price rise lets you lose up to 6.8% of covers (816 out of 12,000) and still hold the same profit. If you expect the price rise to scare off fewer customers than that, the increase improves profit; if it scares off more, profit falls.
- What is contribution margin per unit?
- Contribution margin per unit is the selling price minus the variable cost of one cover (or item). It is the amount each sale contributes towards fixed costs and profit. In the example, price 35 minus variable cost 11 gives a contribution of 24 per cover. Raising the price to 36.75 lifts the contribution to 25.75, which is why fewer covers are then needed to reach the same profit.
- Does this work for price decreases too?
- Yes. Lowering the price cuts the contribution per cover, so you need more volume to stand still. The same indifference-volume logic tells you how many extra covers a discount must generate to be worthwhile. Running both directions in the calculator helps you decide whether a promotion can realistically deliver the volume uplift it requires.
Quick answers
Frequently Asked Questions
What is price-volume-margin (cost-volume-profit) analysis?
Cost-volume-profit (CVP) analysis links your selling price, your sales volume and your contribution margin to profit. It answers practical pricing questions, above all: if I change my price, how much volume can I afford to lose or must I gain to end up with the same profit? For hospitality, where a price rise can scare off some customers, this is exactly the trade-off you need to quantify before acting.
What is the break-even volume after a price change?
When you raise the price, the contribution margin per cover increases, so you need fewer covers to make the same total contribution. The break-even (indifference) volume is the number of covers at the new price that produces the same total contribution as before. It equals the old contribution per unit times old volume, divided by the new contribution per unit. Below that volume you are worse off; above it, better off.
How many customers can I afford to lose after a price rise?
The maximum tolerable drop is (old volume - break-even volume) / old volume. In the worked example a 5% price rise lets you lose up to 6.8% of covers (816 out of 12,000) and still hold the same profit. If you expect the price rise to scare off fewer customers than that, the increase improves profit; if it scares off more, profit falls.
What is contribution margin per unit?
Contribution margin per unit is the selling price minus the variable cost of one cover (or item). It is the amount each sale contributes towards fixed costs and profit. In the example, price 35 minus variable cost 11 gives a contribution of 24 per cover. Raising the price to 36.75 lifts the contribution to 25.75, which is why fewer covers are then needed to reach the same profit.
Does this work for price decreases too?
Yes. Lowering the price cuts the contribution per cover, so you need more volume to stand still. The same indifference-volume logic tells you how many extra covers a discount must generate to be worthwhile. Running both directions in the calculator helps you decide whether a promotion can realistically deliver the volume uplift it requires.