What a hamburger costs

Ask what a hamburger costs to make and you will get two answers, both right.

The first counts what you would not have spent if you had not made it. The beef, the bun, the packaging. Call it the marginal cost. On a four dollar burger it might be one dollar twenty.

The second counts everything divided by how many you made. The beef and the bun, plus the grill, the rent, the manager, the insurance, the accountant. Call it the fully loaded cost. Perhaps two dollars ninety.

Both numbers are correct and they answer different questions. Marginal cost answers whether to make one more, given the kitchen already exists. Fully loaded cost answers whether to be in this business at all.

The failure is using the first to make decisions that are really the second. Every discount justified because we still make money on it is a marginal cost argument. Repeated across enough of the book, the business is running a kitchen that nobody is paying for.

The test: for your top ten products or accounts, produce both numbers. Then find every pricing rule and approval threshold in the organization and check which of the two it is built on. Most are built on marginal cost, because marginal cost is easier to get and always tells you yes.