Price must cover variable cost and contribute toward fixed cost and profit.
Start with unit price, then subtract product, transaction, fulfillment and other volume-dependent costs. The remaining unit contribution determines how many units are required to cover fixed costs.
Discounts reduce contribution faster than they reduce revenue. A 10% price discount can cause a much larger percentage fall in unit contribution, especially in a low-margin product.
Model several price, volume and acquisition-cost scenarios. Contribution margin is an internal planning tool; customer value, positioning and competitive response still influence the final price.
Sources
This guide is educational and does not provide financial, accounting, tax or legal advice.