~2 min read
Price elasticity of demand measures how sensitive your customers are to price changes. It's the ratio of the percentage change in demand to the percentage change in price.
Elasticity = % Change in Demand ÷ % Change in Price
A price elasticity of −1.5 means a 10% price increase reduces demand by 15%.
Elastic vs inelastic demand
| Elasticity | Type | Revenue effect of price increase |
|---|---|---|
| E | < 0.5 | |
| 0.5 < | E | < 1 |
| E | = 1 | |
| 1 < | E | < 2 |
| E | > 2 |
Typical elasticity values by market
Most B2B SaaS products have elasticity between −0.5 and −1.2 — meaning pricing power is moderate to strong. This is why SaaS companies can raise prices by 10–20% and retain most customers.
| Market | Typical elasticity |
|---|---|
| Necessity software (payroll, accounting) | −0.3 to −0.6 |
| B2B SaaS (tools) | −0.6 to −1.2 |
| Consumer subscription | −1.0 to −2.0 |
| Physical commodities | −1.5 to −4.0 |
| Luxury goods | −0.3 to −0.8 |
When to use this calculator
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Before a price increase: enter your current elasticity estimate to see the demand drop and net revenue change. If revenue increases despite some churn, the price increase is financially rational.
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Modeling a discount: a price decrease increases demand but may reduce revenue if demand is inelastic. This calculator shows when discounts are self-defeating.
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Comparing pricing tiers: compare revenue at $49, $79, and $99 under different elasticity assumptions to find the revenue-maximizing price.
Estimating your own elasticity
The best approach: A/B test pricing. Show 50% of new visitors price A and 50% price B. Measure conversion rates. Elasticity ≈ (CR_B/CR_A − 1) / (Price_B/Price_A − 1).
If you can't A/B test: survey customers using Van Westendorp Price Sensitivity Meter (ask: "too cheap", "bargain", "expensive", "too expensive") to estimate the price range where demand is inelastic.
Frequently asked questions
What does this calculator do? Calculate how a price change affects demand and revenue based on price elasticity.