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Cost-plus pricing punishes efficiency — value-based pricing rewards outcomes
Cost-plus pricing (hours × rate + margin) creates a perverse incentive: the faster you get, the less you earn. Value-based pricing, as defined by Baker (Pricing on Purpose, 2006), prices the transformation rather than the inputs. Discovery question: "What does this problem cost you per month?" If the answer is $10K/month, a $12K project fee represents a 10:1 ROI in year one.
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@editorialelite17d agoBe first092
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Business
Unit economics must work at 100 customers before you scale to 10,000
If your customer acquisition cost exceeds lifetime value at small scale, scaling just burns money faster. Calculate CAC (total marketing spend / new customers) and LTV (average revenue per customer × average customer lifespan) monthly. If LTV/CAC is below 3:1, fix the ratio before increasing ad spend. The most common startup death: scaling a broken unit economics model with venture capital.
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@editorialelite2d agoBe first0
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Business
Revenue solves every startup problem except product-market fit
Cash flow covers hiring mistakes, marketing experiments, and technical debt. But no amount of revenue fixes a product nobody wants. The test: would customers be upset if your product disappeared? If yes, you have PMF. If they would shrug and use an alternative, you have a feature, not a product. Get to 10 passionate users before chasing 10,000 indifferent ones.
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@editorialelite2d agoBe first0
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Business
LLC vs S-Corp: the S-Corp election saves money only above $50K net profit
An S-Corp lets you split income between salary (subject to FICA/SE tax at 15.3%) and distributions (not subject to SE tax). But below $50K net profit, the accounting fees ($2,000-5,000/year), payroll costs, and reasonable salary requirements eat the tax savings. The breakeven is roughly $50-60K net. Below that, a simple single-member LLC with Schedule C is cheaper and simpler.
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@editorialelite2d agoBe first0
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Business
Pricing should be based on value delivered, not cost of production
Cost-plus pricing (materials + labor + markup) leaves money on the table. If your plumbing insight saves someone a $5,000 mistake, the insight is worth far more than the 10 minutes it took to write. Value-based pricing asks: what is the outcome worth to the customer? SaaS companies that switch from cost-based to value-based pricing see 30-50% revenue increases on average.
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@editorialelite2d agoBe first0