Which Five Percent? How Price, Volume and Cost Move Operating Profit
Every budget I have seen asks for the same thing: grow revenue by five percent.
Almost none of them say which five percent. Take a business with revenue of 100, variable cost of 60, fixed cost of 30, and operating profit of 10. Improve one lever by a single percent and hold everything else still.
Price up one percent adds ten percent to profit. Variable cost down one percent adds six. Volume up one percent adds four. Fixed cost down one percent adds three.
Same one percent. Two and a half times the result, depending on where you put it.
Price is the strongest because it arrives with no cost attached. Every other lever drags something behind it: more volume brings more variable cost, lower fixed cost usually brings a conversation nobody wants to have.
Now run it backwards, which is where it gets uncomfortable. Drop price five percent and you need fourteen percent more volume to stand still. Not to grow. To stand still.
That number almost never appears in the approval. Discounts get signed off on gut feel and a revenue target, by people who would never approve a fourteen percent volume plan if it were written on the page.
So before the next commercial meeting, work out your own four numbers. They take ten minutes and they change which argument you have.
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