Scenario Comparison
Cost Pass-Through and Gross Margin Comparison
Adjust price, costs and pass-through to compare unit gross profit, gross margin and nine cost scenarios.
Set comparison conditions
Amounts use one common currency unit. Set unit costs, then adjust increases and pass-through.
Shared assumptions
Cost increase and pass-through
Comparison results
A0% pass-through
Gross margin9.00%
B50% pass-through
Gross margin11.65%
C100% pass-through
Gross margin14.15%
Material costs and pass-through matrix
| Material increase | Pass-through 0% | Pass-through 50% | Pass-through 100% |
|---|---|---|---|
| +5% | |||
| +10% | |||
| +15% |
Select a cell to inspect its price, costs and gross profit.
Custom scenario · 10.00% material increase · 50.00% pass-through
- Price
- 103.00
- New material cost
- 66.00
- Other production costs
- 25.00
- Unit gross profit
- 12.00
- Gross margin
- 11.65%
Unit gross profit comparison
Gross margin comparison (%)
Full calculation details
| Material increase | Pass-through | New materials | Price | Unit gross profit | Gross margin |
|---|---|---|---|---|---|
| 5% | 0% | 63.00 | 100.00 | 12.00 | 12.00% |
| 5% | 50% | 63.00 | 101.50 | 13.50 | 13.30% |
| 5% | 100% | 63.00 | 103.00 | 15.00 | 14.56% |
| 10% | 0% | 66.00 | 100.00 | 9.00 | 9.00% |
| 10% | 50% | 66.00 | 103.00 | 12.00 | 11.65% |
| 10% | 100% | 66.00 | 106.00 | 15.00 | 14.15% |
| 15% | 0% | 69.00 | 100.00 | 6.00 | 6.00% |
| 15% | 50% | 69.00 | 104.50 | 10.50 | 10.05% |
| 15% | 100% | 69.00 | 109.00 | 15.00 | 13.76% |
| Custom 10% | 50% | 66.00 | 103.00 | 12.00 | 11.65% |
How to read the results
To preserve the original 15.00% gross margin
Required selling price: 107.06 currency units
Passing through the full cost increase can preserve gross profit per unit without preserving the gross margin.
The defaults are a selling price of 100, raw materials of 60 and other production costs of 25 per unit: gross profit of 15 and gross margin of 15%. The table crosses material increases of 5%, 10% and 15% with pass-through ratios of 0%, 50% and 100%, producing nine scenarios. At a 10% material increase, materials become 66. An unchanged price leaves gross profit of 9; half pass-through gives a price of 103 and gross profit of 12; full pass-through gives 106 and 15. Higher pass-through brings unit profit closer to its initial level, but does not directly establish higher company net profit.
Why do gross profit and gross margin differ?
Gross margin divides gross profit by selling price, not cost. Raising price from 100 to 106 while keeping profit at 15 gives 15 ÷ 106, approximately 14.15%. Half pass-through gives 12 ÷ 103, approximately 11.65%; no pass-through gives 9%. Fully passing through the extra 6 from a 10% material increase preserves the profit amount, but not the original 15% margin. Separate charts display amounts and percentages without mixing units on a single axis or truncating the baseline to obscure negative gross profit.
Method and assumptions
- P
- Selling price after passing through additional costs.
- M
- Material cost per unit after the increase.
- O
- Other production costs.
- G
- Gross profit equals price minus material and other production costs.
- m
- Gross margin equals gross profit divided by selling price.
The pass-through ratio determines how much of the additional material cost is added to the selling price. Gross profit and gross margin are different measures.
Additional material cost: 60 × 10% ≈ 6; new selling price: 100 + 6 × 50% ≈ 103.00
G = 103 − 66 − 25 ≈ 12.00; m = 12 ÷ 103 ≈ 11.65%
Intermediate calculations retain full precision; example results are displayed to two decimal places.
Additional material cost equals the initial material cost multiplied by its increase. The new selling price is the initial price plus additional cost multiplied by the pass-through ratio. Unit gross profit subtracts new material and other production costs from the new price; gross margin divides that profit by the new price. With new total cost of 91, preserving the original 15% margin requires 91 ÷ (1 − 15%), approximately 107.06, above the full-pass-through price of 106. This is a model threshold, not evidence of consumer acceptance or a recommended selling price.
Input bounds: price 0.01–1 billion; each cost 0–1 billion; material increase 0–1000%; pass-through 0–100%.
Using the interactive comparison
Set the original price, material cost and other production costs to define a unit’s economics, then change material inflation and pass-through. The nine-cell table retains the preset combinations but recalculates using the current base costs. A separate custom row and custom chart bar follow the selected increase and pass-through ratio. Compare the prices needed to preserve the profit amount and the margin under identical costs. Zero selling prices, negative costs, empty fields and out-of-range values show validation and remove results. Negative gross profit is a meaningful outcome and is not hidden as an error.
Scope and model limitations
This unit-economics model holds other production costs constant. It excludes volume responses to price, fixed operating expenses, tax, financing, inventories and changes in product mix. Even recovering unit gross profit may coincide with lower total gross profit if sales fall, and total gross profit is not net profit. Material inflation is an independent teaching assumption: a 10% PPI increase must never be interpreted as a 10% rise in every firm’s raw-material costs. Real analysis requires supply-chain details, cost weights, contracts and demand data. Return to the PPI–CPI case to relate prices received upstream to costs downstream and identify which model conditions do not hold.
Charts use the currently selected material increase to compare three fixed pass-through ratios and the custom ratio; the nine-cell table retains all three example increases. The horizontal axis contains scenario categories without connecting lines that imply unobserved intermediate outcomes. Amounts and percentages use separate charts with zero baselines.
Educational examples only. Not investment, trading or pricing advice.
Frequently asked questions
Why can margin fall with full pass-through?
Passing through every additional cost can preserve the profit amount, but the selling-price denominator also rises.
Is negative gross profit treated as an input error?
No. It is a valid model outcome. Negative costs, zero selling prices and blank fields invalidate results.
Can unit gross profit determine company net profit?
No. The model excludes volume responses, fixed operating expenses, tax and other dynamics.