5min chapter

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Gross Margins, Early to Late: What They Do (and Don't) Tell You

a16z Podcast

CHAPTER

How to Benchmark a Software Company's Gross Margin

Software companies typically have gross margins of eventyto eighty per cent in and below that, there's three big buckets of cost items. One is sales and marketing, two is research and development, or product and three is what we call g and a, which is overhead functions. And so you combine those three cost buckets with that seventy per cent or eighty per cent gross margin that i referenced earlier. And what that spits out is your long term profitability. So hat sounds like a perfect formula? No, it's apitently not that precise. A ha, ha. Every business is different. But i think this is a very important discussion because gross margins is far more applicable to mature...

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