Using The Excel Solver To Find The Price That Maximizes Profit

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Harvard asked Dr. Winston to design their course, and Microsoft asked him to write their book. In this video Dr. Winston discusses how to use the Excel Solver to build a model that will help determine the maximum price to set in order to maximize profit.

This is the problem: Determining the optimal price for a product is something that virtually all companies struggle with. If you set the price too high, then you will miss out on sales, but if you set the price too low, then you will squeeze your margins. Knowing how to set the optimal price to have the highest margin and most sales, is something every company is trying to figure out.

This is why it is important for you to solve it: If you could help your company maximize profit based on the optimal price to charge, then not only would your company become more profitable, but your expertise would.

This is how Dr. Winston solves it: Dr. Winston uses the Excel Solver to create constraints and uses the Trend Curve Polynomial Feature to come up with a price that maximizes profit.

If you like this video, it comes from his excel 2019 book, you can get it here:

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[scottmyers]

Can you clarify why you ran Price on the "X" axis and "Volume" on the Y" axis (since demand curve usually is flipped with Price on the "Y"). If you flip the ordering, it doesn't create a polynomial but a linear equation. How do you know doing it your method is the correct approach? Thanks for clarifying. Love the idea.

[UpExcel]

Interesting feature this. I've not really used it myself although use goal seek often. I can see Solver is so much more flexible though. Thanks for the video 👍

[Eileanoircfc]

Hi,
How would this apply when you want to set a peak and off peak price?

[Scalykams]

Wayne, what are your thoughts on data science and and will you be doing some courses on this based on excel?

[marcoantoniocabrera]

Hi Ryan. Is the unit cost you´re using suposed to include indirect prorated costs?