Price Floor

The price floor is the lowest price at which you can sell your product without losing money on every sale. It is calculated from your variable cost per customer, your fixed costs, and your realistic sales volume, and it marks the hard lower bound in every pricing decision and negotiation.

Short-term and long-term floor

In practice it pays to distinguish two floors:

• Short-term price floor: covers only the variable cost per customer. Below this line you lose money on every single sale, no matter how many customers you win.
• Long-term price floor: additionally covers each customer's share of your fixed costs at your planned volume. Only above this line does the business operate sustainably.

Why the floor is not a price recommendation

A common mistake is to treat the floor as the starting point and add a small markup. That gives away the value your product creates: the right price is anchored to customer value and the market, not to your costs. The floor only tells you where a price becomes a mistake.

In the 9-step process, the price floor is calculated in step 5 (financial planning) and recorded in step 6 as the lower end of your pricing corridor.