3 ms·
The 90% figure refers to 'gross margins' and really means 'income minus cost of goods sold'. In software, usually 'gross margins' are meaningless - it's a term
by alexasmyths 9y ago
The 90% figure refers to 'gross margins' and really means 'income minus cost of goods sold'.
In software, usually 'gross margins' are meaningless - it's a term used in most other industries and from classical economics wherein most of costs were actually COGS.
"Yes, you can arbitrarily drop that number by having the business pay you a "salary"."
No, it's not 'arbitrary' at all salaries and operating costs are the relevant costs to the business.
Software (and books) are IP businesses - the 'cost to make the book' or to 'run a website' are not useful in terms of understanding the business or profitability.
FYI - for most 'software businesses', net margins (i.e. after 'salaries and operating costs') are negative.
- jasonkester 9y ago... so if salary is zero, gross margin and profit margin are the same. Which is the case for a single person business. I understand the point you're trying to make, but it's still a bit silly to suggest that my business is not profitable because I may eventually spend some of the money it makes.