5 ms·

MSRP of 3x COGS is a pretty common rule of thumb for hardware. Have to leave room for distribution, software, R&D, returns, SG&A, etc. End of the day, it's pr

MSRP of 3x COGS is a pretty common rule of thumb for hardware. Have to leave room for distribution, software, R&D, returns, SG&A, etc. End of the day, it's probably still only 30-40% gross margin -- less than half of a good SaaS company. Hardware is (indeed!) hard.

cenamus 2y ago
But then how could you call that 100 profit in any way? If you made at most like 30-50?
- roboror 2y ago
  [flagged]
  - bigstrat2003 2y ago
    That makes no sense. Profit, by definition, is net. If you still have to pay costs out of some money, then it isn't profit.
    - KAMSPioneer 2y ago
      Gross and net profit are each their own concept: https://www.investopedia.com/ask/answers/101314/what-are-differences-between-gross-profit-and-net-income.asp https://www.investopedia.com/ask/answers/101314/what-are-dif...
      - bigstrat2003 2y ago
        What they call "gross profit" is not profit, by definition. It's certainly useful to track $revenue-$cost_of_goods, but you can't call that profit. People are free to use words incorrectly, but they shouldn't expect anyone else to go along with them.
        ActivePattern 2y ago
        Who chooses the "correct" use of words? Is it you? Wikipedia disagrees with you: https://en.wikipedia.org/wiki/Gross_margin https://en.wikipedia.org/wiki/Gross_margin. Maybe you should make your own encyclopedia.
        colecut 2y ago
        you mean some person on wikipedia disagrees with him.
        chgs 2y ago
        And hsbc https://www.business.hsbc.uk/en-gb/insights/starting-a-business/gross-profit-vs-net-profit https://www.business.hsbc.uk/en-gb/insights/starting-a-busin... And sage https://www.sage.com/en-us/blog/glossary/what-is-gross-profit/ https://www.sage.com/en-us/blog/glossary/what-is-gross-profi... And the uk education system https://www.bbc.co.uk/bitesize/guides/zd2fpg8/revision/1 https://www.bbc.co.uk/bitesize/guides/zd2fpg8/revision/1
        IIsi50MHz 2y ago
        "Gross margin" seems a suitable alternative term.
        mlyle 2y ago
        What they call "gross profit" is an accounting standard, defined in GAAP, and a standard part of every financial statement. If we're talking about profit from the lens of a unit sale, we're usually talking about gross profit and gross margin.
    - brianshaler 2y ago
      It's absolutely essential to be able to differentiate between gross profit and net profit to establish unit economics, especially as the scale of a newly founded operation may drastically change relative to some amount of fixed capex or SG&A expense.
      - xmprt 2y ago
        Of course. But here we're talking about the opportunity cost of the founders and other employees so gross profit isn't as relevant. Context matters and the context here is that the founders and employees would probably have a much higher take home split amongst all of them if they were to work in the wearables division of a large company like Google or Apple.
        beambot 2y ago
        The difference between gross profit & net profit for companies like this is largely comprised of employee & founder salaries (SG&A and R&D). That delta is literally paying for their opportunity cost. Net profit is most relevant to shareholders.
    - roboror 2y ago
      You can't run a business based on dictionary definitions.
      - zem 2y ago
        Chambers would like a word or several
      - bigstrat2003 2y ago
        You most certainly can, and you should.
        lopis 2y ago
        Please hire an accountant asap if you ever start a business. Things don't mean what you think they mean in accounting. You are wrong and insist you are right despite multiple people pointing it out to you.
- gamblor956 2y ago
  You are conflating two different types of profit. Gross profit = sales or service revenue less the expenses directly related to producing that revenue (this does not include backoffice functions, R&D, rent, etc.) Net profit, which is the total revenue of the business less all expenses of the business (so, this includes R&D, rent, and the "backoffice" like HR, finance, legal, etc.) Larger businesses with multiple business segment may account for gross profit separately for each business segment, but the business only ever calculates one net profit item. There's also unit profit, which is essentially gross profit but at the level of a single unit of goods or services (for services, a unit is usually a customer contract, for recurring services it would be each period of the contract). Unit profit is generally the revenue from that specific unit less the costs directly associated with producing that revenue. Most companies don't calculate unit profit as generally it's not meaningful unless you sell high-value items, like automobiles or planes.
- usrusr 2y ago
  Root post is taking about an upper bound, not about a precise guess. Context is what makes 100 a more fitting number than 40.
- deleted 2y ago
  [deleted]
scyzoryk_xyz 2y ago
Having worked in a tiny start-up-turned-company doing hardware for medical training, my biggest takeaway was that it is very slow but that it can also be very stable. Like, yeah our margins were/are super high, and so were/are the distributors’, but once everything was spun up and running it was also very stable and predictable. We were located on the outskirts of a 3rd tier Eastern European city and yet we were plugged right into the same global parts supply chain and capable of doing the same global distribution you could elsewhere. If you’re on to something, it’s a good time to be doing hardware. But you’re correct - 2/3 of the entire company was distribution/sales and R&D.

cenamus 2y ago

But then how could you call that 100 profit in any way? If you made at most like 30-50?

roboror 2y ago
[flagged]
- bigstrat2003 2y ago
  That makes no sense. Profit, by definition, is net. If you still have to pay costs out of some money, then it isn't profit.
  - KAMSPioneer 2y ago
    Gross and net profit are each their own concept: https://www.investopedia.com/ask/answers/101314/what-are-differences-between-gross-profit-and-net-income.asp https://www.investopedia.com/ask/answers/101314/what-are-dif...
    - bigstrat2003 2y ago
      What they call "gross profit" is not profit, by definition. It's certainly useful to track $revenue-$cost_of_goods, but you can't call that profit. People are free to use words incorrectly, but they shouldn't expect anyone else to go along with them.
      - ActivePattern 2y ago
        Who chooses the "correct" use of words? Is it you? Wikipedia disagrees with you: https://en.wikipedia.org/wiki/Gross_margin https://en.wikipedia.org/wiki/Gross_margin. Maybe you should make your own encyclopedia.
        colecut 2y ago
        you mean some person on wikipedia disagrees with him.
        chgs 2y ago
        And hsbc https://www.business.hsbc.uk/en-gb/insights/starting-a-business/gross-profit-vs-net-profit https://www.business.hsbc.uk/en-gb/insights/starting-a-busin... And sage https://www.sage.com/en-us/blog/glossary/what-is-gross-profit/ https://www.sage.com/en-us/blog/glossary/what-is-gross-profi... And the uk education system https://www.bbc.co.uk/bitesize/guides/zd2fpg8/revision/1 https://www.bbc.co.uk/bitesize/guides/zd2fpg8/revision/1
        IIsi50MHz 2y ago
        "Gross margin" seems a suitable alternative term.
      - mlyle 2y ago
        What they call "gross profit" is an accounting standard, defined in GAAP, and a standard part of every financial statement. If we're talking about profit from the lens of a unit sale, we're usually talking about gross profit and gross margin.
  - brianshaler 2y ago
    It's absolutely essential to be able to differentiate between gross profit and net profit to establish unit economics, especially as the scale of a newly founded operation may drastically change relative to some amount of fixed capex or SG&A expense.
    - xmprt 2y ago
      Of course. But here we're talking about the opportunity cost of the founders and other employees so gross profit isn't as relevant. Context matters and the context here is that the founders and employees would probably have a much higher take home split amongst all of them if they were to work in the wearables division of a large company like Google or Apple.
      - beambot 2y ago
        The difference between gross profit & net profit for companies like this is largely comprised of employee & founder salaries (SG&A and R&D). That delta is literally paying for their opportunity cost. Net profit is most relevant to shareholders.
  - roboror 2y ago
    You can't run a business based on dictionary definitions.
    - zem 2y ago
      Chambers would like a word or several
    - bigstrat2003 2y ago
      You most certainly can, and you should.
      - lopis 2y ago
        Please hire an accountant asap if you ever start a business. Things don't mean what you think they mean in accounting. You are wrong and insist you are right despite multiple people pointing it out to you.
gamblor956 2y ago
You are conflating two different types of profit. Gross profit = sales or service revenue less the expenses directly related to producing that revenue (this does not include backoffice functions, R&D, rent, etc.) Net profit, which is the total revenue of the business less all expenses of the business (so, this includes R&D, rent, and the "backoffice" like HR, finance, legal, etc.) Larger businesses with multiple business segment may account for gross profit separately for each business segment, but the business only ever calculates one net profit item. There's also unit profit, which is essentially gross profit but at the level of a single unit of goods or services (for services, a unit is usually a customer contract, for recurring services it would be each period of the contract). Unit profit is generally the revenue from that specific unit less the costs directly associated with producing that revenue. Most companies don't calculate unit profit as generally it's not meaningful unless you sell high-value items, like automobiles or planes.
usrusr 2y ago
Root post is taking about an upper bound, not about a precise guess. Context is what makes 100 a more fitting number than 40.
deleted 2y ago
[deleted]

scyzoryk_xyz 2y ago

Having worked in a tiny start-up-turned-company doing hardware for medical training, my biggest takeaway was that it is very slow but that it can also be very stable. Like, yeah our margins were/are super high, and so were/are the distributors’, but once everything was spun up and running it was also very stable and predictable. We were located on the outskirts of a 3rd tier Eastern European city and yet we were plugged right into the same global parts supply chain and capable of doing the same global distribution you could elsewhere. If you’re on to something, it’s a good time to be doing hardware. But you’re correct - 2/3 of the entire company was distribution/sales and R&D.