Gross Margin Quotes

Perhaps, indeed, there are no truly universal ethics: or to put it more precisely, the ways in which ethical principles are interpreted will inevitably differ across cultures and eras. Yet, these differences arise chiefly at the margins. All known societies embrace the virtues of truthfulness, integrity, loyalty, fairness; none explicitly endorse falsehood, dishonesty, disloyalty, gross inequity. (Five Minds for the Future, p136)

You have a very interesting look. Where are you from?' Ugh. That's marginally better than the What are you? question I get sometimes, but still gross. 'New York,' I say pointedly. 'You?' 'I mean originally,' he clarifies, and that's it. I'm done. 'New York,' I repeat, and stand up from my stool.

To achieve massive success, you need to have a big new opportunity—one where the market size and gross margins intersect to create enormous potential value, and there isn’t a dominant market leader or oligopoly. A big new opportunity often arises because a technological innovation creates a new market or scrambles an existing one.

But the portion of the forecasting I care the most about is the direction given on future gross margins, because that can be a true indicator of what the business can earn in the future. The gross margin guidance is what will be used to try to figure out next quarter’s earnings estimates. That will set the benchmark that has to be beaten next time.

The first discovery of Dostoievsky is, for a spiritual adventurer, such a shock as is not likely to occur again. One is staggered, bewildered, insulted. It is like a hit in the face, at the end of a dark passage; a hit in the face, followed by the fumbling of strange hands at one's throat. Everything that has been forbidden, by discretion, by caution, by self-respect, by atavistic inhibition, seems suddenly to leap up out of the darkness and seize upon one with fierce, indescribable caresses. 　　All that one has felt, but has not dared to think; all that one has thought, but has not dared to say; all the terrible whispers from the unspeakable margins; all the horrible wreckage and silt from the unsounded depths, float in upon us and overpower us. There is so much that the other writers, even the realists among them, cannot, will not, say. There is so much that the normal self-preservative instincts in ourselves do not want said. But this Russian has no mercy. Such exposures humiliate and disgrace? What matter? It is well that we should be so laid bare. Such revelations provoke and embarrass? What matter? We require embarrassment. The quicksilver of human consciousness must have no closed chinks, no blind alleys. It must be compelled to reform its microcosmic reflections, even down there, where it has to be driven by force. It is extraordinary how superficial even the great writers are; how lacking in the Mole's claws, in the Woodpecker's beak! They seem labouring beneath some pathetic vow, exacted by the Demons of our Fate, under terrible threats, only to reveal what will serve their purpose! This applies as much to the Realists, with their traditional animal chemistry, as to the Idealists, with their traditional ethical dynamics. It applies, above all, to the interpreters of Sex, who, in their conventional grossness, as well as in their conventional discretion, bury such Ostrich heads in the sand!

When we’re young, everyone over the age of thirty looks middle-aged, everyone over fifty antique. And time, as it goes by, confirms that we weren’t that wrong. Those little age differentials, so crucial and so gross when we are young, erode. We end up all belonging to the same category, that of the non-young. I’ve never much minded this myself. But there are exceptions to the rule. For some people, the time differentials established in youth never really disappear: the elder remains the elder, even when both are dribbling greybeards. For some people, a gap of, say, five months means that one will perversely always think of himself – herself – as wiser and more knowledgeable than the other, whatever the evidence to the contrary. Or perhaps I should say because of the evidence to the contrary. Because it is perfectly clear to any objective observer that the balance has shifted to the marginally younger person, the other one maintains the assumption of superiority all the more rigorously. All the more neurotically.

Fortunately, Google found product/ market fit by refining Overture’s advertising auction model. Google’s AdWords product was so much better at monetizing search through its self-service, relevance-driven, auction system that by the time those competitors managed to play catch-up, Google had amassed the financial resources that allowed it to invest whatever was necessary to maintain product superiority. Google doesn’t always get product/ market fit right (and if it had run out of money before hitting upon AdWords, the search business might have died before ever achieving that fit). This is a reflection of its very intentional product management philosophy, which relies on bottom-up innovation and a high tolerance for failure. When it works, as in Gmail, which was a bottom-up project launched by Paul Buchheit, it can produce killer products. But when it fails, it results in killed products, as demonstrated by projects like Buzz, Wave, and Glass. To overcome this risk of failure, Google relies on both its financial strength (which comes from its high gross margins, among other things) and a willingness to decisively cut its losses. For example, when Google bought YouTube (which had clearly achieved product/ market fit), it was willing to abandon its own Google Video service, even though it had invested heavily in that product. Other massively successful companies take a very different approach. In contrast to Google, where new ideas can come from anywhere in the company and there are always many parallel projects going on at the same time, Apple takes a top-down approach that puts more wood behind fewer arrows. Apple keeps its product lines small and tends to work on a single major product at a time. One philosophy isn’t necessarily better than the other; the important thing is simply to find that product/ market fit quickly, before your competition does.

If a platform achieves scale and becomes the de facto standard for its industry, the network effects of compatibility and standards (combined with the ability to rapidly iterate and optimize the platform) create a significant and lasting competitive advantage that can be nearly unassailable. This dominance lets the market leader “tax” all the participants who want to use the platform, much as levies were imposed in the bygone Republic of Venice. For example, the iTunes store takes a 30 percent share of the proceeds whenever a song, a movie, a book, or an app is sold on that platform. These platform revenues tend to have very high gross margins, which generate cash that can be plowed back into making the platform even better. Amazon’s merchant platform, Facebook’s social graph, and, of course, Apple’s iOS ecosystem are great examples of the power of platforms.

Free” has an incredible power that no other pricing does. The Duke behavioral economist Dan Ariely wrote about the power of free in his excellent book Predictably Irrational, describing an experiment in which he offered research subjects the choice of a Lindt chocolate truffle for 15 cents or a Hershey’s Kiss for a mere penny. Nearly three-fourths of the subjects chose the premium truffle rather than the humble Kiss. But when Ariely changed the pricing so that the truffle cost 14 cents and the Kiss was free—the same price differential—more than two-thirds of the subjects chose the inferior (but free) Kisses. The incredible power of free makes it a valuable tool for distribution and virality. It also plays an important role in jump-starting network effects by helping a product achieve the critical mass of users that is required for those effects to kick in. At LinkedIn, we knew that our basic accounts had to be free if we wanted to get to the million users we theorized represented critical mass. Sometimes you can offer a product for free and still be profitable; in the advertising-driven business model, a large enough mass of free users can be valuable even if they never pay for your service. Facebook, for example, doesn’t charge its users a dime, but it is able to generate large amounts of high-gross-margin revenue by selling targeted advertising. But sometimes a product doesn’t lend itself to the advertising model, as is the case with many services used by students and educators. Without third-party revenue, the problem with offering your product to users for free is that you can’t offset your lack of sales by “making it up in volume.

the financial statements, rather than being a driver or goal of the business creation process, become simply the by-product of clear and disciplined strategic thinking. Analogs, antilogs, the leaps of faith that follow from them, and the well thought out dashboards that measure the outcomes of the hypothesis tests are what make this process happen. And the business model that results—a revenue model, gross margin model, and all the rest—is the output of the process.

Too often aspiring entrepreneurs and managers in established firms confine their focus to only one part of their company’s business model. The sales force worries about the revenue model, or if they are incentivized on gross margin, about the gross margin model as well. The procurement team focuses on the gross margin and operating models, by keeping costs down, whether for COGS or operations. And so on. But, ultimately, if everyone thinks about the business in business model terms, decisions are made differently.

two explicit connections among the five business model elements we’d like you to make. • Your revenue model, gross margin model, and operating model directly affect your working capital model. • In turn, these four models directly affect your investment model.

The Implications of Your Revenue, Gross Margin, and Operating Models for Your Working Capital Model: Timing Is Key By now it should be clear that the timing with which you ask your customers to pay for whatever it is that you sell them lies at the heart of your working capital model.

As we’ve seen in the Celtel story, a favorable working capital model—in tandem with thoughtful decisions about your revenue, gross margin, and operating models—can take lots of pressure off your investment model. In some cases, it can sharply reduce the investment you’ll need, or even eliminate it entirely.

where a = accumulated future value, p = principal or present value, r = rate of return in percentage terms, and n = number of compounding periods. All too often, management teams focus on the r variable in this equation. They seek instant gratification, with high profit margins and high growth in reported earnings per share (EPS) in the near term, as opposed to initiatives that would lead to a much more valuable business many years down the line. This causes many management teams to pass on investments that would create long-term value but would cause “accounting numbers” to look bad in the short term. Pressure from analysts can inadvertently incentivize companies to make as much money as possible off their present customers to report good quarterly numbers, instead of offering a fair price that creates enduring goodwill and a long-term win–win relationship for all stakeholders. The businesses that buy commodities and sell brands and have strong pricing power (typically depicted by high gross margins) should always remember that possessing pricing power is like having access to a large amount of credit. You may have it in abundance, but you must use it sparingly. Having pricing power doesn’t mean you exercise it right away. Consumer surplus is a great strategy, especially for subscription-based business models in which management should primarily focus on habit formation and making renewals a no-brainer. Most businesses fail to appreciate this delicate trade-off between high short-term profitability and the longevity accorded to the business through disciplined pricing and offering great customer value. The few businesses that do understand this trade-off always display “pain today, gain tomorrow” thinking in their daily decisions.

Elon Musk calculated that by producing about 80% of their hardware in-house for SpaceX, they could cut the cost of launching for customers and still enjoy a 70% gross margin.

Only add products or services to the company’s offering that generate at least 30 percent gross margin based on the price and the cost of making or delivering that product (COGS).

Every product offered should improve gross margin, not degrade it. You can’t make it up in volume. Please don’t try.

Every individual would count. Therefore every individual had to feel part of the whole, respected and given the means of a dignified life. Injustice, gross inequality, or a failure of concern for the weak and marginal would endanger society at its very roots. There was no margin for error or discontent. Without indomitable courage based on the knowledge that God was with them, the people would fall prey to larger powers.

As I was to learn, the process for creating the digital media business would be quite different because there was so much more to creating a great digital media customer experience than simply adding the next retail category to the Amazon website. The first part of the process went as normal. Our team of three or four people developed plans using the tried-and-true MBA-style methods of the time. We gathered data about the size of the market opportunity. We constructed financial models projecting our annual sales in each category, assuming, of course, an ever-increasing share of digital sales. We calculated gross margin assuming a certain cost of goods from our suppliers. We projected an operating margin based on the size of the team we would need to support the business. We outlined the deals we would make with media companies. We sketched out pricing parameters. We described how the service would work for customers. We put it all together in crisp-looking PowerPoint slides (this was still several months before the switch to narratives) and comprehensive Excel spreadsheets.

A Mumbai-based enterprise software company called BrowserStack lets you do cross-browser testing across web and mobile browsers with plans starting at less than $30 a month. They make millions of dollars a month in revenue with over 80 per cent gross margins, and are growing fast. Most of their business comes from companies outside the US and their entire development team is based out of India. They have not raised any VC money.

Gross profit margin demonstrates competitive advantage: it is the purest expression of customer valuation of a product, clearly implying the premium buyers assign to a seller for having fashioned raw materials into a finished item and branding it.

sustained high gross profit margins relative to industry peers tends to indicate durable competitive advantage. Zeroing

Gross profit margin is often used to make comparisons between companies within an industry. For

Medtronic’s overall cost of making its products was about 25 percent of what it sells them for, yielding an unusually high gross profit margin of about 75 percent.

Low-end disruption has occurred several times in retailing.16 For example, full-service department stores had a business model that enabled them to turn inventories three times per year. They needed to earn 40 percent gross margins to make money within their cost structure. They therefore earned 40 percent three times each year, for a 120 percent annual return on capital invested in inventory (ROCII). In the 1960s, discount retailers such as Wal-Mart and Kmart attacked the low end of the department stores’ market—nationally branded hard goods such as paint, hardware, kitchen utensils, toys, and sporting goods—that were so familiar in use that they could sell themselves. Customers in this tier of the market were overserved by department stores, in that they did not need well-trained floor sales-people to help them get what they needed. The discounters’ business model enabled them to make money at gross margins of about 23 percent, on average. Their stocking policies and operating processes enabled them to turn inventories more than five times annually, so that they also earned about 120 percent annual ROCII. The discounters did not accept lower levels of profitability—their business model simply earned acceptable profit through a different formula.17

I liked to point out that Medtronic, which makes all varieties of medical devices—from surgical tools to pacemakers—is so able to charge sky-high prices that it enjoys nearly double the gross profit margin of Apple, considered to be the jewel of American high-tech companies.

(1) steady gross margins that it protects; (2) a healthy balance sheet, as reflected in the current, cash-to-debt, and debt-to-equity ratios, among other measures; and (3) a sound business model governing how the company delivers value to customers and earns a profit in the process.

Customer Acquisition Cost (CAC) is the total cost (marketing, sales and pre-sales) of acquiring a new customer. ACAC is the average customer acquisition cost. Customer Lifetime Value (CLV) is the gross margin we can expect from a customer over the lifetime of our relationship. ACLV is the average customer lifetime value.

gross margin,” “operating income,” “net profit,” and “earnings per share.

As the 2019 elections were approaching, the Modi government felt the need to appear less pro-rich and more pro-poor again. But the union budget passed in February was somewhat a missed opportunity so far as the peasants were concerned. No loan waivers were announced in their favor, simply an enhanced interest subvention on loans and an annual income support of Rs 6,000 (80 USD)—6 percent of a small farmer’s yearly income—to all farmers’ households owning two hectares or fewer.131 In fact, the union budget was once again more geared to pleasing the middle class. The income tax exemption limit jumped from Rs 200,000 (2,667 USD) to 250,000 (3,333 USD), and the income tax rate up to Rs 5 lakh (6,667 USD) was reduced from 10 to 5 percent. The income tax on an income of Rs 10 lakh (13,333 USD) dropped from Rs 110,210 (1,470 USD) to Rs 75,000 (1,000 USD).132 The poor were doubly affected by the fiscal policy of the Modi government in 2014–2019: not only did the tax cuts in favor of the middle class, the abolition of the wealth tax, and, more importantly, the reduction of the corporate tax rates have to be offset by increased indirect taxes, but the stagnation of fiscal resources did not allow the government of India to spend more on public education and public health—all the more so as Narendra Modi wanted to reduce the fiscal deficit. First of all, tax collection diminished. The exchequer “lost” Rs 1.45 lakh crore (1.933 billion USD) in the reduction of the corporate tax, for instance. That was the main reason why gross direct tax collection dipped 4.92 percent133 in 2019–2020, a fiscal year during which gross tax collections were less than those in 2018–2019. Tax collections had never declined on a year-on-year basis since 1961–1962.134 Second, government expenditures diminished. The central government reduced its spending on education from 0.63 percent of GDP in 2013–2014 to 0.47 percent in 2017–2018. The trend was marginally better on the public health front, where the Center’s spending declined from 0.37 percent of GDP in 2013–2014 to 0.34 percent in 2015–2016, before rising again to reach 0.38 percent in 2016–2017.

PROVEN PATTERN #1: BITS RATHER THAN ATOMS Google and Facebook are largely software businesses that focus on electronic bits rather than material atoms. Bits-based businesses have a much easier time serving a global market, which in turn makes it easier to achieve a large market size. Bits are also far easier to move around than atoms, so bits-based businesses can more easily tap into distribution techniques like virality, and their ability to be highly networked provides more opportunities to leverage network effects. Bits-based businesses tend to be high-gross-margin businesses because they have fewer variable costs. Bits also make it easier to design around growth limiters. You can iterate more quickly on software products (many Internet companies release new software daily) than on physical products, making it faster and cheaper to achieve product/market fit. And

The five elements of the business model—your revenue, gross margin, operating, working capital, and investment models—contain the key to whether your idea and your planned strategy really hold water in economic terms. You will examine how the lifeblood of every business, cash—from customers, suppliers, investors, or all three—can be transformed into a potentially thriving and sustainable venture.

To have a wellness business that lasts, your gross margin must be greater than 50% and preferably greater than 60%.

Astute readers may have noticed that Dow Jones’s working capital model was implemented, in reality, by asking subscribers to pay up front. That’s a revenue model issue, too, isn’t it? Right you are. Costco’s working capital model was driven largely by membership fees paid up front—a revenue model issue—that in turn enabled it to adopt a gross margin model with low, low prices and razor-thin gross margins. So why do we see these cases as working capital stories? We’ve placed the Dow Jones and Costco cases in the working capital chapter because their working capital models lie at the heart of their long-running success. In their essence, working capital models are about the timing with which cash flows into and out of the business. In most industries, that means the timing with which customers pay, the timing with which suppliers are paid, and the timing or speed with which inventory (or piles of other current assets) can be turned over and over again.

But getting low prices from vendors didn’t mean that Costco would fatten its margins. On the contrary. Sinegal insisted that no item could be marked up to a gross margin over 14 percent (contrast that with supermarkets and department stores, which carried 20 to 50 percent gross margins across their various categories of merchandise, maintaining average gross margins between 20 and 25 percent).21 Discount stores like Kmart and Target had even greater average gross margins across their product mix, ranging from 25 to 30 percent. These were the antilogs Sinegal wanted to beat.

fundamental analysts focus their attention on company finances and economic data about industries for which the stocks trade (also known as industries). They are concerned with factors like corporate earnings reports, profit margins, unemployment rates, and gross domestic product (GDP) growth rates. They examine these economic factors to determine how they will affect the demand and supply of a particular stock.

Every product or service must have a gross margin of at least 30 percent of net revenue or 45 percent above cost of goods sold.)

the hurdle rate for gross margin is that it be equal to or greater than 30 percent of the net revenue.

business doesn’t run on net revenue; it runs on gross margin.

Every product or service must have a gross margin of at least 30 percent of net revenue or 45 percent above cost of goods sold.

Let net revenue and gross margin drive the right level of expenses, not the other way around. This is the Holy Grail of small business management.

Net revenue minus COGS equals gross margin. Gross margin minus expenses (fixed and variable) equals EBT. EBT minus taxes equals net income.

In the end, it is never just one factor that brings a company down. The root cause of Rhythm & Hues’s demise was an unsound business model, but the problems with that model ultimately made it impossible for the company to protect its gross margins and its balance sheet. By the same token, Reell Precision Manufacturing’s failure to protect its gross margins undermined what had previously been a sound business model and forced the company to keep taking on debt, thereby making a shambles of its balance sheet.

be successful over the long term, the company has to have and maintain: (1) steady gross margins that it protects; (2) a healthy balance sheet, as reflected in the current, cash-to-debt, and debt-to-equity ratios, among other measures; and (3) a sound business model governing how the company delivers value to customers and earns a profit in the process.

was clear to me that laptop hinges were in commodity land,” he said. “Reell does some things exceptionally well. Competing in a commodity business is not one of them.” The company needed enough gross profit to cover the cost of developing the technological innovations that were its trademark and an essential element of its business model. Commodity products have low gross profit margins by definition. The gross profit that laptop hinges were generating at that point simply wasn’t sufficient to keep Reell healthy.

To make the business model for your new coffee shop work then you will need to achieve around 75% gross margin overall. To achieve this in a typical coffee shop with a typical sales mix of 65% drinks and 35% food, the drinks profit should be around 85% and the food profit around 70%.

Review all of your numbers (quarterly revenue, profit, gross margin, and any other relevant key numbers) and your Rocks (company and leadership teams on the Rock Sheet) from the previous quarter to confirm which ones were achieved and which were not. I highly recommend simply stating “done” or “not done” for each. This will give you a clear, black-and-white picture of how you performed. Don’t get caught up in believing you can complete 100 percent of your Rocks every quarter. It’s perfectionist thinking and not realistic. You always want to strive for 80 percent completion or better—that’s enough to be truly great.

Despite all the chaos, and the inefficiency of manufacturing and shipping in small batches, Zara’s gross margins continue to exceed those of its competitors H&M (55 percent) and Gap (29 percent). That’s because all that inefficiency incurred in the pursuit of speed allows Zara to avoid one of the biggest drags on gross margin for almost any apparel company—overstock of designs that failed to sell. Ortega devised this model when he was sixteen years old—don’t order inventory and hope it sells; instead, figure out what people want, and then make it.

If the gross margins of this new opportunity are low, the market size has to be even bigger to make it a big opportunity. You have to know that the ultimate size of the prize is worth it.

Gross margins, which represent sales minus the cost of goods sold, are probably the best measure of long-term unit economics. The higher the gross margin, the more valuable each dollar of sales is to the company because it means that for each dollar of sales, the company has more cash available to fund growth and expansion.

old economy” businesses often have low gross margins. Growing wheat is a low-margin business, as is selling goods in a store or serving food in a restaurant.

Most of the valuable companies we’re focusing on in this book have gross margins of over 60, 70, or even 80 percent.

Many blitzscalers, such as Amazon or the Chinese hardware makers Huawei and Xiaomi, deliberately price their products to maximize market share rather than gross margins. As Jeff Bezos is fond of saying, “Your margin is my opportunity

since transactions on today’s platforms are conducted through application programming interfaces (APIs) rather than person-to-person negotiations, they proceed swiftly, seamlessly, and in incredible volumes, all with barely any human intervention. If a platform achieves scale and becomes the de facto standard for its industry, the network effects of compatibility and standards (combined with the ability to rapidly iterate and optimize the platform) create a significant and lasting competitive advantage that can be nearly unassailable. This dominance lets the market leader “tax” all the participants who want to use the platform, much as levies were imposed in the bygone Republic of Venice. For example, the iTunes store takes a 30 percent share of the proceeds whenever a song, a movie, a book, or an app is sold on that platform. These platform revenues tend to have very high gross margins,

Recall that GDP, gross domestic product, the dominant metric in economics for the last century, consists of a combination of consumption, plus private investments, plus government spending, plus exports-minus-imports. Criticisms of GDP are many, as it includes destructive activities as positive economic numbers, and excludes many kinds of negative externalities, as well as issues of health, social reproduction, citizen satisfaction, and so on. Alternative measures that compensate for these deficiencies include: the Genuine Progress Indicator, which uses twenty-six different variables to determine its single index number; the UN’s Human Development Index, developed by Pakistani economist Mahbub ul Haq in 1990, which combines life expectancy, education levels, and gross national income per capita (later the UN introduced the inequality-adjusted HDI); the UN’s Inclusive Wealth Report, which combines manufactured capital, human capital, natural capital, adjusted by factors including carbon emissions; the Happy Planet Index, created by the New Economic Forum, which combines well-being as reported by citizens, life expectancy, and inequality of outcomes, divided by ecological footprint (by this rubric the US scores 20.1 out of 100, and comes in 108th out of 140 countries rated); the Food Sustainability Index, formulated by Barilla Center for Food and Nutrition, which uses fifty-eight metrics to measure food security, welfare, and ecological sustainability; the Ecological Footprint, as developed by the Global Footprint Network, which estimates how much land it would take to sustainably support the lifestyle of a town or country, an amount always larger by considerable margins than the political entities being evaluated, except for Cuba and a few other countries; and Bhutan’s famous Gross National Happiness, which uses thirty-three metrics to measure the titular quality in quantitative terms.

gross profit margin, which is useful for making side-by-side comparisons among a subject company’s current manufacturing efficiency, its past manufacturing efficiency, and that of its competitors.

indication that it is benefiting from some type of competitive advantage. Gross profit margin is calculated by the following formula. GROSS PROFIT MARGIN = GROSS PROFIT/REVENUES

Surprisingly, most entities that go broke do it during a period of an increase in sales volume. This statement shocks most people (especially those involved with sales) because most everyone mistakenly believes that a business fails as a result of a lack of sales volume. The facts are, however, that business is not a game of volume. Business is always a game of margin. If a business doesn’t maintain gross margin at an adequate level, it is going to go bust, regardless of its sales volume.

The IMF also said its own analysis of the future development of debt was wrong ‘by a large margin.’ … The IMF had originally projected Greece would lose 5.5% of its economic output between 2009 and 2012. The country has lost 17% in real gross domestic output instead. The plan predicted a 15% unemployment rate in 2012. It was 25%.