notes #2: the only equation you need to know to start business

Hey friends,

It’s 10pm, and I’ve been deep-diving into business case studies—trying to figure out the ins and outs of building a better business. That’s when I stumbled on a simple yet powerful equation that’s been hiding in plain sight:

Revenue = Price x Quantity

I know, it’s probably the first formula you learn in business or economics. It’s straightforward at first glance: make more money by raising your price or selling to more people. But here’s the thing—I never fully appreciated how much nuance and “magic” this little equation contains.

Price

Price has always been one of the most important (and trickiest) parts of business. You set it too low, you risk going bankrupt. You set it too high, people may run for the hills.

In economics, there are a few common pricing strategies:

• Cost-Based Pricing: Add a markup to whatever it costs you to produce the product (traditional retail).

• Value-Based Pricing: Charge based on how much value your customers think they’re getting (think luxury or branded goods).

• Competitive Pricing: Check out what your competitors are charging and do something similar (typical in commodities or highly competitive industries).

But here’s what really caught my attention: your chosen price essentially decides the type of customers and market you’ll attract.

• If you go premium, you’ll be dealing with smaller volumes but higher profit margins, a different marketing strategy, and intense focus on product quality or brand perception.

• If you go budget, you aim for bigger volume, super-efficient production, and cost-savings wherever possible.

And from a customer perspective, price triggers all sorts of biases. One example is decoy pricing—like when a movie theater sneaks in a “medium” popcorn option to make the large seem like a steal. Subtle moves like that can shift buying behavior overnight.

The big catch? Once you set a price, it’s tough to change it without good reason. That’s why so many companies add new versions, new features, or shift to tiered pricing instead of simply jacking up the cost.

Quantity

At first, “quantity” can seem like a basic concept—“sell more.” But think about how it defines business strategies:

• Mass Production vs. Personalization: A massive factory setup for producing goods at scale vs. a specialized service offered by doctors, lawyers, or agencies who work more intimately with fewer clients.

• Scarcity & Exclusivity: Limited drops or “special-edition” items can drive up demand like crazy. Customers love feeling unique or part of an exclusive club.

• Digital Scale: With software or online services, increasing quantity often costs next to nothing. Selling to 100 or to 1,000 doesn’t incur a massive difference in production costs.

When you’re at the very start (going from 0 to 1), your main challenge is figuring out if your product even works—does it solve a real problem for real people? This stage is all about product-market fit.

Going from 1 to 100 is about reaching more people. And as you scale, competition heats up. The bigger the quantity, the more your business valuation and potential revenue can skyrocket. Just look at social media giants or everyday products like razors—they bank on high usage or high volume.

The Business Model

Beyond brand and product, your business model is essentially how you apply the Price x Quantity equation to make money.

• Subscriptions: Price x Quantity x Average Duration

• Freemium: A large number of free users + a smaller number of paid users (often with extra features)

• Pay-Per-Use: Where quantity is usage, not the number of users

• Peer-to-Peer Platforms: Where pricing is dynamic and fluctuates with supply and demand

A classic example is Costco. Traditionally, supermarkets make money from selling products at a slight markup. Costco flipped the script by adding a membership fee. That subscription fee stabilizes their revenue (even if people buy more or less in any given month), so they can offer goods at lower prices overall and still be profitable. Same industry, but a different business model can change everything.

So…

It all boils down to this: Revenue = Price x Quantity seems simple until you peel back the layers. Price shapes your market, your brand, and your relationship with customers. Quantity can range from mass-market to ultra-exclusive, and it heavily influences how you scale. Together, they form the core of any business model you can think of.

So, next time you’re brainstorming or putting together a business plan, remember: a quick revisit to this basic equation might spark a whole new perspective.

Thanks for reading, and have a great day!

Cheers,
Joesurf

🧠 Weekly Notes

📖 Book — Fall in Love with the Problem, Not the Solution

A great read on validating real problems in the market before you commit your time, money, and energy into a new product.

📖 Book — Business Adventures

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📹 Video — How Costco Became A Massive "Members Only" Retailer

An insightful exploration of Costco's unique business model, highlighting how its membership-based approach, bulk pricing, and commitment to quality have driven its success and revolutionised the retail industry.

⚙️ Framework — SWOT Analysis

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💡 Quote of the Week

Price is what you pay. Value is what you get.
— Warren Buffett