The 1 to 10 price-to-profit impact rule!
- FutureUP
- Dec 17, 2025
- 1 min read
🤓 Everyone loves quoting McKinsey’s rule:
1% price increase → 10% profit increase! 🚀
It’s quoted everywhere. And sounds universal.
It isn't. 🤔
👉 There is no 1→10 rule.
The real relationship is simple:
% profit change = % price change ÷ % profit margin
That’s it. No magic. No mystery.
When the McKinsey rule actually works:
Margins around 10%
Typical for manufacturing and industrial firms
Now look at tech 👇
SaaS companies:
Contribution margin: ~80%
1% price increase → ~1.25% profit increase
Pricing tweaks still matter, but less than scaling fast.
The real lever? Market share, volume, and economies of scale.
LLM-based AI companies:
High variable costs (compute, GPUs)
Margins can drop to ~40%
1% price increase → ~2.5% profit increase
Here, pricing still matters. But long-term survival - unless you have OpenAI-level funding - depends on:
Reducing compute dependency
Improving efficiency at scale
Innovating beyond pure LLM usage
⚠️ One critical caveat:
Everything above assumes quantity stays constant. In a follow-up post, I’ll break down what happens when quantity changes and elasticity kicks in!
Bottom line:
➡️ Price increases are a powerful profit lever
➡️ But impact depends heavily on existing margins
➡️ For AI or other low-margin businesses, pricing can move profits even more
For a deeper breakdown of the formula and why discounting rarely increases profit, visit here!
Interested in learning more about AI-Powered Price Optimization and Strategic Forecasting?