Price Shock Simulator

Stress test your P&L against external threats. Model the combined impact of Inflation, Competitor Price Cuts, and Demand Drops.

Baseline P&L

Annual Revenue ($)

COGS %

Fixed OpEx ($)

Shock Factors

Cost Inflation % (COGS UP)

10%

Price Erosion % (Price DOWN)

Demand Drop % (Vol DOWN)

10%

Profitability Impact

Baseline Profit

$300,000

Shocked Profit

$159,000

Survival Check

Resilient: Still Profitable

Profit Swing

Net Profit drops from $300,000 to $159,000. That is a -47.0% decline.

The Killer Variable

Toggle the sliders. Usually, Volume Drop hurts the most for software (high margin), while Cost Inflation hurts the most for retail (low margin).

Buffer Needed

If profit is negative, ensure you have enough cash reserves to cover the loss for at least 6-12 months.

Execution Steps

Input your current P&L baselines (Revenue, COGS %, Fixed OpEx).

Set the 'Shock Factors': Input Cost Inflation, Market Price Erosion, and Volume Drop.

See if your Net Profit stays positive under stress.

Use this to determine how much cash buffer you need.

Pro Strategy

Inflation hits hard because it compounds. A 10% cost hike might wipe out 50% of your net profit if margins are thin.
If the Shocked Profit is negative, you need a 'Plan B' immediately (e.g., cutting OpEx or pivoting product).
Raising prices is the natural hedge against inflation, but checking 'Price Erosion' simulates if the market rejects the hike.

Core Concepts

Stress Testing

Simulating extreme but plausible negative scenarios to ensure business resilience.

Operating Leverage

High fixed costs (OpEx) make you more vulnerable to shocks. If revenue drops, profit drops faster because OpEx stays the same.

Margin Compression

The double whammy of rising costs (Inflation) and falling prices (Competition) squeezing profit from both ends.

Deep Dive

What is Price Shock Simulator?

This simulator applies simultaneous negative variances to your Income Statement. It demonstrates the compound effect of 'Bad News'. Often, these shocks are correlated (e.g., Recession causes both Inflation and Demand Drop).

Best For

• Annual budgeting / risk assessment.
• Evaluating supply chain vulnerability.
• Pitching for a line of credit (showing you can handle downside).

Limitations

• Linear scaling.
• Does not account for cash flow timing (inventory hold).
• OpEx assumed fixed.

Alternative Methods

Scenario Simulator

Comparing distinct strategic choices rather than external shocks.

Break-Even Analysis

Finding the zero point rather than modeling a specific bad scenario.

Industry Applications

See how this methodology generates real revenue uplift in different sectors.

Industrial

Manufacturing Firm

Challenge

Raw material costs spiked 20%.

Solution

Simulated impact. Profit margin dropped from 15% to -2%.

Triggered emergency price surcharge clause in contracts to pass on cost, saving the year.

Ecommerce

DTC Brand