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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.

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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

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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

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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

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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

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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

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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

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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

chevron-rightPrice changes have no effecthashtag

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

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

chevron-rightDemand response feels unrealistichashtag

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

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Related guides

PreviousBuild a Unit Economics ModelNextBuild a Cost of Goods Model

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