Build a price and cost sensitivity table
A single margin figure hides how fragile it is. A sensitivity table, a grid of prices across the top and costs down the side, shows how gross margin and gross profit respond when either assumption moves. It takes a few minutes to build and is one of the most useful pricing worksheets there is.
Step 1: choose a base case
Start from the price and unit cost you actually expect. Here the illustrative base case is a $100 price and a $60 cost: $40 gross profit and a 40% gross margin.
Step 2: choose sensible ranges
Vary each input around the base by amounts that could plausibly happen, such as ±5% and ±10%. For price that gives $90, $95, $100, $105 and $110. For cost it gives $54, $57, $60, $63 and $66. Wider ranges are fine if your costs are volatile (commodity inputs, freight, exchange rates); narrower ones if prices are contracted.
Step 3: fill the grid
Each cell is (price − cost) ÷ price. The base case sits in the middle.
| Unit cost | Price $90 | Price $95 | Price $100 | Price $105 | Price $110 |
|---|---|---|---|---|---|
| Cost $54 | 40.0% | 43.2% | 46.0% | 48.6% | 50.9% |
| Cost $57 | 36.7% | 40.0% | 43.0% | 45.7% | 48.2% |
| Cost $60 | 33.3% | 36.8% | 40.0% | 42.9% | 45.5% |
| Cost $63 | 30.0% | 33.7% | 37.0% | 40.0% | 42.7% |
| Cost $66 | 26.7% | 30.5% | 34.0% | 37.1% | 40.0% |
It helps to show gross profit in dollars alongside the percentages, because two cells with similar margins can carry quite different dollar amounts:
| Unit cost | Price $90 | Price $95 | Price $100 | Price $105 | Price $110 |
|---|---|---|---|---|---|
| Cost $54 | $36 | $41 | $46 | $51 | $56 |
| Cost $57 | $33 | $38 | $43 | $48 | $53 |
| Cost $60 | $30 | $35 | $40 | $45 | $50 |
| Cost $63 | $27 | $32 | $37 | $42 | $47 |
| Cost $66 | $24 | $29 | $34 | $39 | $44 |
Step 4: read the table
- The diagonal stays at 40%. When price and cost move by the same percentage (both −10%, both +10%), margin is unchanged, but gross profit per unit changes from $36 to $44 along that diagonal.
- Price moves margin more than cost does. A 10% price cut with cost unchanged drops margin from 40% to 33.3%. A 10% cost rise with price unchanged drops it to 34%. Price changes hit every dollar of revenue; cost changes hit only the cost share.
- The corners show the stress case. A 10% price cut combined with a 10% cost rise gives a 26.7% margin and $24 of gross profit per unit, 40% less profit per unit than the base case.
Step 5: decide what to do with it
Mark the cells where margin falls below the level you need to cover overhead. That boundary tells you how much cost inflation you can absorb before you must change price, or how much discounting you can afford before you must cut cost. If the acceptable area is small, your margin depends heavily on one assumption, so find out which one.
Checklist for a useful table
- Base case in the center, with a stated date for the price and cost quotes.
- Ranges based on what could actually happen, not arbitrary steps.
- Both margin % and gross profit $ shown.
- Changes one or two inputs at a time; for more variables, build separate tables.
- Notes on what "cost" includes, so the next person can update it.
Changing one assumption at a time is the same sensitivity approach used in managerial accounting for break-even analysis (OpenStax Managerial Accounting §3.3); for volume-based sensitivity see the break-even calculator on ameticapital.com.
Sources for definitions
- OpenStax, Principles of Accounting Vol. 1 §6.6: Gross margin
- OpenStax, Managerial Accounting §3.3: Sensitivity analysis under changing business situations
Definitions follow standard accounting usage as presented in the sources above. All dollar figures on this page are our own illustrative arithmetic.
Educational arithmetic only. Results do not set a suitable price or establish suitability for any lending, investment or business decision. See Use & limitations.