Capture attention and establish relevance for markup vs. margin concepts
TechStart Solutions was on a roll. Sarah Chen had just landed three major projects back-to-back: a complex e-commerce site for a growing retailer ($8,500), a social media strategy for a restaurant chain ($3,200), and SEO for a dental practice ($4,100). She had even hired Alex as her first full-time employee.
By the end of the quarter, revenue had climbed from $12,000 to $15,800 — a 32% jump. Everything looked great from the outside.
Sarah's revenue grew from $12,000 to $15,800 — a 32% increase. She hired her first employee. Business looked great from the outside.
Before you see the full numbers: what do you predict happened to her profit?
Share your prediction and reasoning with a partner:
- What did you predict — and why? Did your partner predict differently?
- If revenue grew 32% but profit fell, what must have happened to Sarah's costs?
- Have you ever seen a business (or person) earn more but feel like they have less? What was going on?
Previous Quarter — Solo Work
- Revenue: $12,000
- Expenses: $4,000
- Profit: $8,000 (67% margin)
Current Quarter — With Growth
- Revenue: $15,800
- Expenses: $11,200
- Profit: $4,600 (29% margin)
Sarah realized her entire pricing strategy was wrong. She had been setting prices just to cover her costs and add a small buffer — not to reflect the real value TechStart Solutions provided. When expenses grew with the business, her cost-plus approach collapsed.
Two advisors are arguing about how Sarah should fix her pricing. Pick one and be ready to defend your position:
Advisor A — Raise Prices
"Sarah is undercharging. Her services deliver real value — she should raise prices to reflect that, even if she loses a few clients. Fewer projects at higher margins means less stress and more profit."
Advisor B — Cut Costs
"Raising prices is risky in a competitive market. Sarah should focus on running leaner — cut unnecessary expenses, renegotiate supplier rates, and automate where possible. Lower costs mean better margins without scaring off clients."
There's no single right answer — the analysis tools in Phase 4 will help you build a data-driven case for whichever strategy you choose.
Understanding the difference between markup and margin isn't just about following formulas — it's about building a business that actually stays profitable as it grows. Sarah's story shows how even successful entrepreneurs make costly pricing mistakes. In today's lesson, you'll learn to avoid that mistake and set prices that reflect true value.