Gross margins is far more applicable to mature businesses and businesses that have very specific cogs. Cogs is cost of goods, which just like how much it costs for the product that's shipping out the door. I think there's a tendencyo to categorise things like sophor licenses in r andd, sometimes gana. But i looked at a company that that actually needed these sophora licenses for the uct to be deployed. So this is literally the definition of a variable cost to serve. It not only led to gross margins being off by five to ten %, but also, as you think about modelling your business forward, and and sort of thexpenses that you're
Gross margins–which are essentially a company’s revenue from products and services minus the costs to deliver those products and services to customers–are one of the most important financial metrics for any startup and growing business. And yet, figuring out what goes into the “cost” for delivering products and services is not as simple as it may sound, particularly for high-growth software businesses that might use emerging business models or be leveraging new technology.
In this episode from June 2020, a16z general partners Martin Casado, David George, and Sarah Wang talk all things gross margins, from early to late stage. Why do gross margins matter? When do they matter during a company’s growth? And how do you use them to plan for the future? The conversation ranges from the nuances of and strategy for calculating margins with things like cloud costs, freemium users, or implementation costs, to the impact margins can have on valuations.