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.

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.

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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.

1

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.

2

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.

3

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.

4

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:

Effective price example

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

• 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.

5

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.

6

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.

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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.

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Troubleshooting

Price changes have no effect

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

Margins move in unexpected ways

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

Demand response feels unrealistic

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

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Related guides

• Menu Pricing & Recipe Costing

• Viewer Permissions

• Workspace Organisation

• Branch Assignment