# Build a Pricing Model

This guide shows how to build a pricing model in Model Reef that lets you test different price points, discount strategies and mix, and see how these flow into revenue, margin, cash and valuation.

{% hint style="info" %}
Before you start

You should have:

* A model with basic revenue and unit drivers.
* An understanding of how Revenue and COGS variables work.
* A view of your current price levels and possible future pricing strategies.

If you do not yet have unit drivers, work through Build a Unit Economics Model first.
{% endhint %}

***

## What you will build

* Drivers for price per unit by product, plan or segment.
* Revenue variables that respond to price changes and volume assumptions.
* A view of gross margin under different pricing strategies.
* A way to compare pricing scenarios through separate models.

{% stepper %}
{% step %}

### Map your pricing structure

Clarify how you actually price:

* Flat price per unit or per order.
* Tiered pricing based on volume or usage.
* Subscription plans (for example basic, standard, premium).
* One off fees plus recurring revenue.

List your key price points and any volume or segment based distinctions.
{% endstep %}

{% step %}

### Create price drivers

In the Data Library:

* Create **Economic drivers** for key prices, for example:
  * `Price per Unit - Standard`
  * `Price per Unit - Premium`
  * `Subscription Fee - Basic`

For each price driver:

* Set current price levels.
* Define escalation rules if you expect regular price increases.
* Optionally define promotional periods where price is discounted.

These drivers are the main levers you will move when exploring pricing.
{% endstep %}

{% step %}

### Link revenue variables to price drivers

Ensure your **Revenue variables** reference price drivers explicitly.

For example:

* `Revenue - Standard` might be:
  * `Units - Standard × Price per Unit - Standard`
* `Revenue - Premium` might be:
  * `Units - Premium × Price per Unit - Premium`

If your revenue variables do not yet use such formulas, update them to reference the new price drivers.

Now price and units are cleanly separated.
{% endstep %}

{% step %}

### Model discounting or promotional pricing

If you run discounts or promotions:

* Create **Modifier drivers** for discounts, for example:
  * `Discount Rate - Seasonal Sale`

Adjust revenue formulas to incorporate discount factors, for example:

{% code title="Effective price example" %}

```
Effective price = Base price × (1 minus Discount driver)
```

{% endcode %}

* Schedule the discount driver values to be non zero only during relevant periods.

This yields time bound pricing changes that flow into revenue and margin.
{% endstep %}

{% step %}

### Review gross margin under different prices

Gross margin is driven by revenue and COGS.

* Ensure COGS variables are also linked to unit or volume drivers.
* Open **P\&L** and focus on:
  * Revenue by product or segment.
  * COGS by product or segment.
  * Gross Profit and Gross Margin.

When you adjust price drivers, observe how:

* Revenue changes through volume times price.
* COGS changes if volume changes.
* Gross margin ratio moves.

Use charts for margin versus time under different pricing assumptions.
{% endstep %}

{% step %}

### Build and compare pricing scenarios

To explore alternative strategies, create separate models, for example:

* `Model - Pricing - Current`
* `Model - Pricing - Moderate Increase`
* `Model - Pricing - Aggressive Increase`
* `Model - Pricing - Discount Led Growth`

In each model:

* Adjust price drivers.
* Optionally adjust unit drivers to reflect expected demand elasticity.
* Leave other assumptions constant where possible.

Compare across models:

* Revenue
* Gross margin
* EBITDA
* Cashflows and valuation outputs

This clarifies trade offs between price, volume and profitability.
{% endstep %}
{% endstepper %}

***

## Check your work

* Revenue variables use explicit price and unit drivers.
* Price changes flow through visibly to revenue and margin.
* Pricing scenarios are easy to explain and differ only where intended.
* Valuation metrics respond logically to different pricing strategies.

***

## Troubleshooting

<details>

<summary><strong>Price changes have no effect</strong></summary>

Confirm revenue formulas actually reference the price drivers you are updating, not hard coded values.

</details>

<details>

<summary><strong>Margins move in unexpected ways</strong></summary>

Check that COGS is correctly linked to units not revenue, and that no additional costs scale in unplanned ways with revenue.

</details>

<details>

<summary><strong>Demand response feels unrealistic</strong></summary>

Adjust how unit drivers respond to price changes, based on more realistic assumptions or historical data.

</details>

***

## Related guides

* [Menu Pricing & Recipe Costing](/use-cases/hospitality-restaurants-cafes-bars/menu-pricing-and-recipe-costing.md)
* [Viewer Permissions](/help/permissions-and-collaboration/viewer-permissions.md)
* [Workspace Organisation](/help/workspace-and-organisation/workspace-organisation.md)
* [Branch Assignment](/syntax/variables-syntax/branch-assignment.md)


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