---
title: "What is price elasticity? Formula | Product Metrics"
description: "Price elasticity is how strongly the units you sell respond to a price change. See the formula, an example per product and why a price cut needs more sales."
canonical: "https://www.productmetrics.io/glossary/price-elasticity"
pageType: article
language: en
publisher: "Product Metrics"
author: "Berend Vrakking"
datePublished: 2026-10-07
dateModified: 2026-10-07
---

> Content index: https://www.productmetrics.io/llms.txt

# 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.

## 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 margin](https://www.productmetrics.io/glossary/contribution-margin): The profit per sale that a price cut reduces.
- [Markup vs margin](https://www.productmetrics.io/glossary/markup-vs-margin): Use the margin, not the markup, when you work out the sales a cut needs.
- [Markup and margin calculator](https://www.productmetrics.io/margin-calculator): Work out margin, markup and selling price from cost.
- [Competitor Prices](https://www.productmetrics.io/competitor-prices): See your price position against comparable competitor products.
- [Competitive pricing examples](https://www.productmetrics.io/blog/competitive-pricing-examples): Worked cases of matching a competitor’s price, and the extra orders it needs.

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Written by Berend Vrakking, founder of Product Metrics. Last updated 2026-10-07.

HTML version: https://www.productmetrics.io/glossary/price-elasticity