If you have studied economics at any point in your life then you should know that PED stand for Price Elasticity of Demand. In business, price elasticity of demand is used to measure the degree of relationship between changes in quantity demanded of a good and changes in its price.
In a nutshell its really simple math formula that will allow you to evaluate how well the price for one product performed compared to another. However it does not stop their!
PED can be used on anything. The only things you need to evaluate for PED are the amount, and unite quantity. PED works on the idea that 0 (Zero) is the least amount of results, while anything above or below zero is only measured by its distance from zero.
For example, let’s say that you sold 500 units for $25 dollars each, and then one day you changed your price and sold 420 units for $30 dollars each.
For most people they will evaluate the change in price and the number of units by multiplying the price time units to see if they broke even or acquired greater returns at the higher of lower price.
However when it comes to sorting out what price is the best level for product demand, it does not allow you to get a real reading, of what is going on. This is where PED comes into play.
With our example above; when we changed the price by 5 dollars we raised the value of the product by 16% (p), and we also lowered the number of units sold by 28.57% (q).
By taking the change in unit quantity (q), and dividing it by the change in price (p), we learn that the 5 dollar change produces a PED of 0.56. From this it really does not mean jack, however this is where it gets important.
Let’s say we changed our unit price to $28 dollars, and we sold 460 units at that price. With that we learned that the PED is now 0.15. (q=1.2%, p=8%)
What this teals us is that when we raised the price to $30 dollars we had seen a larger reaction from our customers (0.56), compared to when we raised the price to $28 dollars we had seen a smaller reaction (0.15).
While my example is on a micro scale, we have learned that our customers have a 0.41 PED change in their reaction to deciding to buy the product or not.
Because of this we can messier how quickly our customers respond to changes in prices, or marketing, and with one more test probably could sell the units for $29.98 without much loss in units sold.
From the example above, we learned our customers had a large reaction to the 5 dollar price change compared to our 3 dollar change. With PED you can measure how much your customers respond to pricing, and you will be able to quickly respond by placing down a price that that will fit your customers spending, and your desired pricing.
While PED can be a positive or negative number, it only is a method to measure people’s positive or negative reaction to price points or marketing.
In my example above I only showed you how a price change and number of units could be sold, however don’t let your view of PED stop their, as you can apply it to almost anything as long as it has to units of measure.
Just think if you sent out 300 emails, and got 800 visitors in 30 days, or you traded 50 links, and got 134 visitors in 30 days. Once more this is where PED could help you evaluate your marketing results!
This can also be applied to Adsense, for Ad placement on your site, to help evaluate better performance when you have something with a price that changes without your control. All you have to do is evaluate the number of views (q), compared to the number of clicks (p) to evaluate your ad click-ability compared to CTR, eCPM, etc.
I have learned many things from PED over the years. For example I learned that making my site look nicer only produced a 1.1 reaction to my ad clicks over the last 4 years, as well as, what type of post produce more comments, or links from other blogs. It is truly a endless measuring stick to customer reaction, just as this article will probably only see 1-2 comments if any at all, compared to other articles that I have measured that pushed this site into an Alexa ranking of 20,000 at one time or another.
Best, and I hope you enjoyed this post!


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