How To Use Price Elasticity Testing To Maximize Revenue

More often than not, the prices you set for your products have a degree of elasticity. Depending on your target audience, you may be able to increase revenue by lowering prices (leading to more sales) or raising them (fewer sales, but more revenue per sale). Pricing is one of the most powerful levers you have to influence your bottom line. Price elasticity testing allows you to strategically assess different price points and improve both revenue and profit. 

This guide explains what price elasticity is and how to test it so you can approach pricing as an ongoing optimization strategy rather than a one-time decision.

What is price elasticity?

In economics, price elasticity—specifically price elasticity of demand (PED)—describes the relationship between price changes and customer demand. Businesses can estimate this relationship by observing how sales respond when prices increase or decrease.

To calculate price elasticity of demand, use this formula:

PED = % change in quantity sold / % change in price

Let’s say you sell a wellness product for $32. Over the course of a month, you typically sell 500 units. You decide to raise the price by 12.5% to $36. After the price increase, your sales volume drops to 400 units—a 20% decrease in quantity sold.

Using the formula, your calculation would look like this:

PED = 20% / 12.5% 

PED = 1.6

Economists typically focus on the absolute value of price elasticity, so the result is expressed as 1.6.

Because the result is greater than 1.0, your product is considered price elastic, meaning demand is relatively sensitive to price changes. The 12.5% increase in price resulted in a disproportionately large 20% drop in sales.

Understanding whether demand is elastic or inelastic can help guide your pricing strategy. If a small change in price leads to a large change in demand, your product is considered price elastic. This is common for highly competitive categories where consumers can easily switch to a cheaper alternative, as well as luxury goods that buyers can forego if the price gets too high.

If demand stays relatively stable despite price increases, the product has inelastic demand. Examples include essential goods like life-saving medication and grocery staples, as well as products with extremely loyal customers.

What is price elasticity testing?

Price elasticity testing is the controlled process of adjusting price points to gather reliable insights into customer behavior. The goal is to gather enough data to identify meaningful patterns, not just react to a single day of sales. Testing allows you to identify the ideal price where you achieve maximum profit without significantly reducing sales volume. Beyond improving your own margins, a price testing framework can also strengthen your position when expanding into wholesale or retail partnerships.

Karen Danudjaja, founder of the wellness company Blume, says one of the biggest advantages of running a direct-to-consumer (DTC) site is the ability to easily test pricing and messaging. Having this pricing data gives the Blume team confidence when pitching their products to wholesale buyers. 

“When we approached Whole Foods and Target and all these retailers because of the direct-to-consumer routes, we felt really confident with what we were presenting,” she says on an episode of the Shopify Masters podcast. “We knew the messaging resonated. We knew the pricing was working. We had data to provide retail buyers. And they looked at it; they cared about that kind of proof of concept.”

How to conduct price elasticity testing

1. Select your test products and set a baseline
2. Calculate your floor
3. Implement the price change
4. Monitor customer behavior
5. Analyze and iterate

Shopify’s analytics features enable businesses to track the results of price tests and make data-driven decisions. Here’s how to conduct price elasticity testing. 

Select your test products and set a baseline

Choose products with consistent traffic and sales so you have enough data to assess the results. Shopify store owners can use Shopify Analytics to pull a product performance report, which establishes your baseline conversion rate and unit profit before any changes are made.

Calculate your floor

Before changing your price, you must know your break-even point. Increasing sales volume via a lower price is successful only if your margins remain healthy. Shopify users can make sure they are tracking cost per unit in product settings. This allows you to automatically calculate your margin impact as you test various price points.

Implement the price change

Adjust your price by a meaningful percentage (typically 10% to 20%) to trigger a measurable reaction from customers. For large catalogs, use Shopify’s Bulk Price Editing to update entire collections at once. If you are testing perceived value, use the “compare at” price field to see if an anchor price changes the elasticity.

Monitor customer behavior

Run your test for at least seven to 14 days. This accounts for variations in shopping behavior between weekdays and weekends. If you sell globally, use Shopify Markets to monitor how a price change in one region (like the US) compares to another (like the UK), as elasticity often varies by culture and local competition.

If your sales data is limited, you can also gauge customer sensitivity to price informally. Hair removal brand Sugardoh founder Aliyah Marandiz manages these preferences by using anonymous social media polls to do gut checks on pricing. “The beauty of social media being anonymous is that you also get honesty there,” she says on an episode of Shopify Masters. “Every time we’re thinking about putting out a new product, we’ll do a poll and get people’s honest opinions.”

By asking her community directly if they would actually spend a certain amount on a proposed item, she confirms her team is on the right path regarding customer willingness before investing in production. “All those questions are asked before we jump into a new opportunity, because this is the reason why I have this company, it is for people to purchase products that can influence their daily routines,” she says.

Analyze and iterate

Once you’ve run your price test. Compare the percentage change in quantity sold against the percentage change in price. For Shopify users, check your Sales by Product report. If your revenue and total profit increased despite a dip in volume, you’ve likely found a more optimal price point.

Coffee brand Kloo provides an example of why price testing is essential. On Shopify Masters, cofounder Claudia Snoh discusses how she used an extensive survey during the brand’s soft launch and discovered that a $35 price point and added shipping fees were major roadblocks resulting in abandoned checkouts. To test a new model, the brand:

1. Lowered the bottle price from $35 to $32

2. Removed the shipping fee entirely

3. Added a two-bottle minimum order

This price testing adjustment did more than just increase their conversion rate; it actually made the company more profit on a unit level. Claudia found the right pricing strategy by looking at the total production costs, sales volume, and logistics as a single ecosystem.

Best practices for effective price elasticity testing

• Isolate your variables
• Avoid seasonal noise
• Segment your audience

In order to ensure your testing yields actionable results, follow these four best practices:

Isolate your variables

To know if price was the driver of a sales shift, it must be the only thing that changed. Avoid launching a new ad campaign, changing your website theme, or updating product photos at the exact same time you run a price test.

Avoid seasonal noise

Schedule a baseline price elasticity test outside of any major holidays or Black Friday Cyber Monday. External factors—like heavy competitor discounting—will skew your results and give you a false sense of how sensitive your customers actually are.

Segment your audience

Not all customers have the same price sensitivity. A loyal repeat customer may be inelastic, or willing to pay more for the brand they love, while a first-time visitor from a social media ad may be highly elastic. Use Shopify’s customer segmentation to look at how high-value versus first-time customers responded to the price change in your analytics.