This graph is a quick way to figure out the percentage change in unit sales volume you'll need in order to maintain your current gross profit in dollars if you cut or raise your prices. Start on the horizontal axis, at your gross profit margin before your price change (45% in our fishing-lure example). Then move up to the curved line that corresponds to the price change you are contemplating (- 15% in our fishing-lure price cut; + 15% in our price hike). From this point, move horizontally to the right. This is the percentage your unit sales must change -- 50% increase with our fishing-lure price cut and 25% decrease for the hike -- if you are to maintain your current dollars of gross profit.
Published on: Apr 1, 1987