🔥 Margins don’t fail overnight

They collapse quietly, and long before you notice! 😲

Many industries are under serious margin pressure.

The reasons are familiar:

⚠️ Intense competition

⚠️ Price pressure

⚠️ Limited customer budgets

⚠️ Rising energy and raw-material costs

⚠️ Macro uncertainty

Even highly differentiated markets like AI are feeling it.

For example, in a recent post, Gary Bailey highlighted that OpenAI may be operating at margins as low as -70%.

So here’s the real question:

👉 How easy is it to “just” raise prices to fix margins? Short answer: It depends heavily on your starting point! 📈

There’s a simple formula that estimates the price increase needed to reach a target margin (m) from an initial margin (m₀). This is independent of volume changes:

p = (m-m0)/(1-m)
(p: % change of price, m: % target margin, m0: % initial margin)

Using this logic, we can build a matrix that shows how starting margins lock in future profitability.

Back to the OpenAI example:

➡️ From -70% margin, breaking even requires ~70% price increase

➡️ Reaching a 25% margin requires a 2–2.5× price increase

That’s not tuning.

That’s structural change. 😲

Which usually means:

• Major cost reductions (often outside your control), and/or

• A new monetization model (usage-based, ads, tiers, etc.)

Why so extreme?

👉 Because low starting margins anchor everything that comes next.

Now flip the scenario.

If margins were 10% today, reaching 25% would require only a ~20% price increase.

If you pay $20/month for ChatGPT today, would you pay $24?

Most users would.

That’s the power of a strong margin foundation.

The lesson for business leaders:

✅ The obvious: Control costs early → weak discipline compounds fast

✅ The less obvious (but critical): Price seriously from day one → bad pricing anchors future pain

Many companies chase penetration and underinvest in pricing. That imbalance can hurt future profitability even for great products. 💡

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