Penetration Pricing Calculator
Model a market entry pricing strategy: the volume required to offset a low introductory price, and how long losses accumulate before price increases restore margin.
Formula & Reference
| Variable | Symbol | Formula | Units |
|---|---|---|---|
| Penetration Pricing Calculator | — | Cumulative position = (penetration price − cost) × volume, then at target price after ramp | currency |
Step-by-Step Examples
Target 60, launch 39, cost 27, 900 units monthly, 9 months, 72% retention.
- Launch contribution = 39 − 27 = 12 per unit
- Target contribution = 33 per unit
- 9 months at 900 units = 97,200 cumulative
- After increase: 648 units × 33 = 21,384 monthly
- Sacrificed 169,100 during penetration, recovered in 7.9 months
Target 60, launch 22, cost 27, 900 units, 6 months.
- Launch contribution = −5 per unit
- Six months accumulates −27,000 in losses
- Below-cost pricing requires funding and a credible path to raising price
Target 60, launch 39, cost 27, 900 units, 9 months, only 40% retention.
- After increase: 360 units × 33 = 11,880 monthly
- Recovery takes 14.2 months rather than 7.9
- Low retention undermines the whole penetration rationale
Real-World Applications
Common Mistakes to Avoid
Customers acquired on price often leave on price. Without a credible path to the target price, penetration pricing simply becomes the price.
Retention assumptions drive the entire business case. A 72% assumption that turns out to be 40% nearly doubles the recovery period.
Extended introductory pricing establishes a reference price customers judge all future pricing against, making increases harder than modelled.