Mike's restaurant was packed every night. Lines out the door. Six months later, closed. He thought 100% markup meant 50% profit. It does not. That missing math killed his business.
This happens constantly. Smart people. Good products. Dead businesses. They failed grade-school math. Not calculus. Not statistics. Basic arithmetic. Percentages. Simple stuff that matters.
Business math is not about being smart. It is about not being stupid. There is a difference. Smart loses money on complex derivatives. Stupid loses money on basic margins. Guess which kills more businesses.
How Basic Math Kills Businesses
Markup vs Margin: The Killer Mistake
Buy for $100. Sell for $150. What is your profit margin? If you said 50%, you are wrong. And probably bankrupt soon.
Markup: ($150 - $100) / $100 = 50% markup
Margin: ($150 - $100) / $150 = 33.3% margin
Different numbers. Different reality.
Tony ran a boutique. Doubled every price. Thought he had 100% margins. Actually 50%. His spreadsheet was fiction. When he learned the truth, he aged five years in five seconds.
Compound Interest Nobody Understands
Competitor raises prices 2% monthly. "That is nothing," you think. Twelve months later, they are up 26.8%. Your customers are gone. You are confused.
2% monthly is not 24% yearly. It is (1.02)^12 - 1 = 26.8%. Compound growth. Same with losses. 2% monthly loss? Not down 24%. Down 21.5%. Math matters when planning recovery.
Volume Will Not Save You
San Francisco startup. Meal kits. Cost $47 to make and ship. Sold for $45. Plan: "At scale, costs drop to $40!"
Still losing $5 per box. Volume makes it worse, not better. They burned $8 million learning this. Founder works at Meta now. Probably still bad at fractions.
Daily Math That Runs Real Businesses
Break-Even: The Only Number That Matters
Sarah's bakery. She knows one number: 127. That is how many pastries cover her $2,800 daily costs. Pastry 126 loses money. Pastry 128 makes money.
Most owners cannot tell you their break-even. They talk about growth. Market share. Vision. But cannot answer: How many widgets pay for today? Sarah knows. Sarah survives.
Customer Lifetime Value
Pitch meeting. Founder pitching his platform. VC asks: "What is your LTV to CAC ratio?" Silence. Meeting over.
Translation: Customer pays you $1,200 lifetime (LTV). Costs $400 to acquire them (CAC). That is 3:1. Good ratio. Below 3:1 means struggling. Above 3:1 means spend MORE on marketing. Counter-intuitive but true.
Inventory Turnover
Watch shop: Turns inventory twice yearly. 300% margins. 7-Eleven: Turns every 23 days. 25% margins. Both drive Mercedes. Different games.
Pick your model. High margin, slow turn? Low margin, fast turn? Both work. Mixing them fails. Luxury margins with convenience store turnover? Dead. Convenience margins with luxury turnover? Also dead.
Statistics That Print Money
A/B Testing: Google's $200 Million Blue
Google tested 41 shades of blue for ad links. Forty-one shades. The winner made them $200 million extra. From a color.
Friend changed his checkout button from green to orange. Conversions jumped 34%. Same price. Same product. Different button color. His wife still does not believe that saved the business.
Regression: Weather Equals Money
Phoenix ice cream chain. Every degree above 95°F = $8,400 more daily sales. Below 70°F? Sales drop 60%. They staff based on weather forecasts.
Hardware store runs out of generators every hurricane season. "Could not predict it!" Really? Happens every September for 20 years. Use our linear regression calculator. Plot the pattern. Stock accordingly.
Standard Deviation: Why FedEx Wins
FedEx: 10:30 AM delivery. Not morning. Not before noon. 10:30 AM. Their standard deviation: 14 minutes. 95% arrive between 10:02 and 10:58.
USPS: "3-5 business days." Standard deviation: 2.3 days. Some arrive in 1 day. Others in 8. People pay 5x for FedEx. They buy certainty, not speed.
Financial Math That Matters
Time Value of Money
Uncle sold his plumbing business. Turned down $50,000 cash. Took $80,000 over 5 years instead. Thought he was smart. He was not.
At 10% discount rate, that $80,000 equals $49,737 today. He lost money by taking "more" money. This is why lottery winners take lump sums. Dollar today beats dollar-ten tomorrow.
Operating Leverage
Pizza shop: $2 profit per pizza. To double profit, double pizzas. More cheese. More labor. More headaches.
Software: Build once. Sell forever. Customer #1 costs $500,000 (development cost). Customer #10,000 costs $5 (server cost). That is leverage. That is why software founders buy yachts.
Amazon's Cash Flow Trick
Customer orders Day 1. Pays immediately. Amazon pays supplier Day 90. For 89 days, free money. Interest-free loan from customers.
Dell did it first. Customers paid upfront for PCs. Dell paid suppliers 45 days later. Using customer money to run the business. Not genius. Just math. And timing.
Pricing Psychology
Price Elasticity
Rolex raises prices 10%. Sales drop 2%. They make more money. People buying $30,000 watches do not care about $33,000. They might want it MORE now.
Gas station raises 10%. Loses 25% of customers. Different game. Luxury sells status. Gas sells commodity. Know which you are selling.
The $99 Trick
Brother sells courses. Same course. $100 vs $99. The $99 version sells 31% more. One dollar difference. Our brains see two digits instead of three.
Bundle trick: Three bad courses nobody wants. $97 each individually. Bundle for $197. People think they save $94. Sales triple. Repackaged failure as bargain.
Surge Pricing Works
New Year's Eve. 2 AM. Uber shows 3.2x surge. You pay it. Alternative is walking in cold. That is not gouging. That is supply and demand.
Airlines figured this out decades ago. Monday morning NY to Chicago: $600. Tuesday afternoon same flight: $180. Same seat. Different customer. Different price. Math is beautiful. Even when it feels dirty.
Startup Math Disasters
The Runway Lie
Board meeting. Founder: "$2 million cash, $200k burn, 10 months runway!" Plans to fundraise month 9.
Reality: Month 3, hired engineers. Burn becomes $280k. Month 5, AWS explodes. $320k burn. Month 6, panic fundraising. Month 8, bad bridge loans. Never divide cash by current burn. Multiply burn by 1.5. Subtract 3 months for fundraising. That is real runway.
CAC Payback Fantasy
SaaS startup. "CAC only $600! Customers pay $100/month! Six-month payback!" Then I ask about churn. Blank stares.
45% leave before month 4. Half your customers gone before break-even. Not building business. Running expensive customer rental service. They insisted product would get stickier. It did not.
Giving Away Your Company
Founder proud of $10M Series A. "Only gave up 20%!" I ask about seed round. Pre-seed. Advisors. Options. He owns 31% of his company. After Series A.
Needs Series B to reach profit. Will own under 25%. That is not founding. That is job application with extra steps.
Small Business Math Hacks
Contribution Margin Is Everything
Forget EBITDA. Forget gross margin. Small business needs one number: contribution margin. Revenue minus variable costs of that sale.
Print shop example: Business cards bring $100 revenue, $30 costs. $70 contribution. Wedding invitations: $200 revenue, $150 costs. $50 contribution. He pushed weddings because they seemed premium. Wrong. Business cards made more money. Dropped weddings. Revenue fell 15%. Profit doubled.
80/20 Rule Actually Works
Boutique owner finally did the math. 23% of inventory generated 81% of profit. Not revenue. Profit. Had 200 SKUs. Cut to 50. Same rent. Same staff. No dead inventory. Customers did not notice. They came for bestsellers anyway.
Cash Flow Timing
Landscaper struggled with cash. Finished job. Sent invoice. Waited 45 days for payment. Meanwhile, paying employees weekly.
Solution: 50% deposits. Now gets paid BEFORE buying materials. Cash cycle went from +15 days to -10 days. From struggling to cash reserves in three months. Same work. Same price. Different timing. Track improvement with our percentage calculator.
Big Companies That Get Math
Amazon's $25 Minimum
2002. Amazon losing money on shipping. Average order: $17. Solution: $25 minimum for free shipping. People add extra items to qualify. Average order jumps to $37.
Then Prime. Pay $139 upfront for "free" shipping. Prime members spend $1,400 yearly. Non-Prime: $600. That $139 psychologically commits you. You shop there to "get value." Amazon wins.
McDonald's Real Business
McDonald's does not sell burgers. They rent real estate to people who sell burgers. Own land under 45% of restaurants. Franchisee pays rent forever. Land appreciates.
Math: Franchisee pays 4% franchise fee plus 8-12% rent. 15% of revenue gone before buying first patty. Franchisee might make 6% profit. McDonald's makes 15% for existing. Not restaurant business. Real estate fund with burger hobby.
Costco's Membership Model
Costco barely profits on products. 11% gross margin. After costs, maybe 2% profit. How are they worth $300 billion?
Membership fees. $4.2 billion pure profit. Without memberships, Costco breaks even. With them, money printing. Members feel exclusive buying 48-packs of toothpaste. Psychology brilliant. Math better.
The Truth About Business Math
Mike from the beginning? Works at tech company now. Makes twice his restaurant income. "At least I know what margin means now," he says. We laugh. It is not funny.
Nobody teaches this. Business school teaches theories. Porter's Five Forces. SWOT analysis. But not "if you do not know unit economics, you die."
My first business failed. Great product. Terrible math. Thought revenue meant profit. Thought growth meant success. Accountant said three months to bankruptcy. He was right.
Second business? One spreadsheet saved it. Tracked every dollar in. Every dollar out. When they crossed. No fancy software. No MBA theories. Just knowing if I made or lost money. Daily.
Your competition is not smarter. They just check numbers more often. That "lucky" competitor with perfect pricing? They test constantly. Small changes. Measured results.
Start tomorrow. Pick one number. Revenue per customer. Conversion rate. Whatever. Track for 30 days. Just track. Do not improve yet. Just watch. You will see patterns. Then improve 1%. Just 1% weekly. After a year? Up 67%. That is not motivation. That is math.
Business success is not about complex math. It is about simple math done consistently. Know your margins. Know your break-even. Know your cash flow. Everything else is detail.
The businesses that survive are not the smartest. They are the ones that can count.
