Price elasticity of demand

Price elasticity of demand is how strongly the units you sell respond to a price change: the percentage change in quantity divided by the percentage change in price.

By Berend Vrakking, founder of Product Metrics. Updated 7 October 2026.

Formula

Price elasticity = % change in units sold ÷ % change in price

The result is usually negative: a lower price sells more. Below −1, such as −2.0, demand is elastic and revenue rises when you lower the price; between 0 and −1 it is inelastic and revenue falls. The midpoint method divides each change by the average of the before and after values, so a rise and a fall between the same two prices give the same answer.

Example

Worked example, the same 10% price cut on two products, units per week
Product	Price before → after	Units before → after	Change in units	Elasticity
Trail Runner	€100.00 → €90.00	50 → 60	+20%	+20% ÷ −10% = −2.0
Everyday Sock	€10.00 → €9.00	200 → 210	+5%	+5% ÷ −10% = −0.5

The same 10% cut moved the shoes four times as much as the socks. Elasticity is a property of each product, and a shop-wide figure would describe neither. With the midpoint method, Trail Runner comes out at −1.73. Illustrative data.

For one product, and for an account

You can estimate it for one product from your own price changes: compare units per week before and after. The result is noisy, because season, your ad spend, stock levels and competitor prices change in the same weeks. Change one product at a time, compare the same number of weeks with nothing else changed, and treat a few weeks of low volume as a hint, not a measurement.

Elasticity alone does not tell you whether a cut pays. At a 40% margin, a 10% price cut takes the profit per unit from €40.00 to €30.00 on a €100.00 product, so you need 33.3% more units to earn the same (price cut ÷ (margin − price cut) = 10 ÷ 30), before advertising costs. Trail Runner sold 20% more: 60 × €30.00 = €1,800.00 against 50 × €40.00 = €2,000.00 before.

Cross-price elasticity measures how your units respond to a competitor’s price: % change in your units ÷ % change in their price. If a competitor lowers its price by 10% and you sell 5% fewer units, it is +0.5; a positive value means the products are substitutes. Competitor Prices in Product Metrics shows your price position against comparable competitor products. It makes no price recommendations and does not measure elasticity.

Common mistake

Expecting a price cut to pay for itself because demand is elastic. At a 40% margin, a −2.0 elasticity still loses money on a 10% cut: you need about −3.3 to hold profit.

Questions

How do you calculate price elasticity of demand?

Divide the percentage change in units sold by the percentage change in price. If you lower a price from €100.00 to €90.00 (−10%) and weekly units go from 50 to 60 (+20%), the elasticity is +20% ÷ −10% = −2.0. Illustrative data.

How do you find price elasticity with the midpoint method?

Divide each change by the average of the before and after values. Units: 10 ÷ 55 = 18.2%. Price: −€10.00 ÷ €95.00 = −10.5%. Elasticity: 18.2% ÷ −10.5% = −1.73. It gives the same result whether the price went down or up between the two prices.

What is cross-price elasticity?

It is the percentage change in the units of one product divided by the percentage change in the price of another. Positive means substitutes: when a competitor’s product gets cheaper, you sell less. Negative means complements, such as shoes and the socks bought with them.

Keep reading

Contribution marginThe profit per sale that a price cut reduces.
Markup vs marginUse the margin, not the markup, when you work out the sales a cut needs.
Markup and margin calculatorWork out margin, markup and selling price from cost.
Competitor PricesSee your price position against comparable competitor products.
Competitive pricing examplesWorked cases of matching a competitor’s price, and the extra orders it needs.