Optimal Price Analysis
The Optimal Price Analysis is a mathematical computation that helps a business identify the point where it realize the maximum of profit.
This Optimal price calculator allows a business to accomplish the following:
- Determine the quantity it needs to produce or sell in order to realize the maximum of profit;
- Determine the selling price it needs to charge for a specific quantity you sell in order to realize the maximum of profit.
Definitions and terms used in the Optimal Price Analysis
- Variable Cost per Unit: the cost that vary with the production or the purchase of one unit.
- Fixed Cost (FC): the cost that remains constant within a range of production or sales, regardless of the number of units produced or sold within that range. Typical fixed costs are: rent, mortgage, equipment, salaries, insurance, fixed utilities (office utilities) etc.
- Current selling price: the price that a unit is currently sold for.
- Current selling units: the number of units currently sold or produced.
- Maximum capacity (Units): the constraint regarding the maximum number of units that the company can produce or sell.
- Maximum financing capacity: the constraint regarding the financing capacity of the company (bank accounts, credit cards, lines of credit etc.).
- Price elasticity of demand (PeD): the responsiveness of the quantity demanded of a good or service to the increase or decrease in its price. As a general rule, sales increase with drop in prices and decrease with rise in prices.
Typically, PeD has a negative value. For our purpose, in order to make it easier for our users, we will consider the absolute value of PeD. By default we setup PeD as 1 (unit elastic).
The meaning of PeD value is:Value Meaning PeD = 0 Perfectly inelastic 0 < PeD < 1 Relatively inelastic or inelastic demand PeD = 1 Unit (or unitary) elastic 1 < PeD < ∞ Relatively elastic or elastic demand PeD = ∞ Perfectly elastic - Optimal Price: the selling price where the company realize its maximum of profit.
- Optimal Units: the number of selling units to be sold in order to realize the maximum of profit.
- Total Variable Cost (VC): the cost that varies directly with the number of units produced or sold. Typical variable costs are: materials, packaging and shipping, sales commission, hourly wages, variable utilities (factory utilities) etc.
Total Variable Cost = Selling Units x Variable Cost per Unit - Total Cost (TC): total expenses incurred in the process of producing or selling a number of units.
Total Cost (TC) = Fixed Cost (FC) + Total Variable Cost (VC) - Total Revenue: the total sales value of the units produced or sold.
Total Revenue = Selling Units x Selling Price per Unit - Profit: the benefits from producing or selling a number of units.
Profit = Total Revenue - Total Cost
Terms of use
1. Complementarily, in order to calculate the Optimal Price for your business, we offer a calculator free of charge. However, we appreciate a donation if you value our tools and services.
2. You may link to these calculators from your website as long as you give proper credit to
C. C. D. Consultants Inc. and there exists a visible link to our website.
3. Although C. C. D. Consultants Inc.'s personnel has verified and validated the Optimal Price calculator, C. C. D. Consultants Inc. is not responsible for any outcome derived from its use. The use of the Optimal price calculator is the sole responsibility of the user and the outcome is not meant to be used for legal, tax, or investment advice.
