Price elasticity
Price elasticity of demand measures how much unit sales change when price changes, calculated as the percentage change in units sold divided by the percentage change in price. An ecommerce operator uses it to predict what a price move does to volume, revenue and - the part that matters - contribution margin.
| Variable | What it covers |
|---|---|
| % change in units sold | The demand response, measured with traffic and promo conditions held as steady as possible. |
| % change in price | The price move being tested, against the real selling price customers saw before it. |
E is normally negative - price up, units down. |E| > 1 is elastic (volume reacts more than price), |E| < 1 is inelastic. Conventions differ: some sources quote the absolute value.
Worked example
Example numbers. The revenue line moved 3.4%; the margin line moved 18.7% - which is why elasticity is judged on contribution, never revenue.
What is a good price elasticity?
There is no good or bad elasticity in isolation - whether a given number supports a price change depends entirely on your margin structure. The same −0.6 that prints money at a healthy contribution margin can still be worth acting on at a thin one, because the thinner the margin, the more a price rise adds per unit relative to what you keep today, and the more volume you can afford to lose. The number that actually decides is your break-even volume drop: how many units can walk before the price rise stops paying. Compute yours with the free price increase calculator.
Price elasticity vs related metrics
| Metric | What it measures | How it differs from price elasticity |
|---|---|---|
| Contribution margin | What each order leaves after variable costs. | The other half of every pricing decision - elasticity says what volume does, margin says what that volume is worth. |
| Average order value (AOV) | Revenue per order. | A price move shifts AOV mechanically; elasticity tells you what happens to the order count alongside it. |
| Demand forecasting | Expected units per SKU per period. | Elasticity feeds the forecast whenever the plan includes a price change. |
| Marketing mix modeling (MMM) | How sales respond to marketing spend by channel. | The same response-curve idea pointed at ad dollars instead of price - the two are estimated with similar machinery. |
Common mistakes
- Measuring elasticity during a promo. Response to a "20% off" badge is discount psychology, not price elasticity - it does not predict what a quiet base-price change will do.
- Ignoring what traffic did. Units before vs after a price change means nothing if ad spend, email volume or seasonality moved at the same time. Hold conditions steady or test properly.
- Judging the result on revenue. A price rise can lift revenue while margin falls, and cut revenue while margin jumps - the worked example above moves 3.4% on revenue and 18.7% on contribution.
- Assuming one elasticity for the whole catalog. Hero products, gifts and replenishables respond differently, and so do new versus returning customers - measure where the volume is.
- Treating elasticity as permanent. Competition, positioning and the customer mix all drift; an elasticity measured two years ago describes a store that no longer exists.
Price elasticity FAQ
Related
Blufire S12 Financial Models estimates price elasticity from your own price history alongside MMM, and the Scenario Lab in S11 Planning & Forecasting lets you run the price move on paper before you run it on customers.
Updated July 2026