Let's talk gross margins. One of the most interesting things investors get wrong is gross margin.
Is it better for a successful consumer brand with recurring customers to add 80% gross margin shoes which make $50 of margin per sale or 40% gross margin couches which make $500 per sale? Of course the latter.
Since the cost to acquire a customer is amortized over all of the gross margin you earn from them, you should be focused on profit per unit of CAC not maximizing your margin.
PayPal’s gross margin is ~ 1% and its one of the best businesses on the planet. @WarrenBuffett gets this as evidenced by his comments on @seescandies but I still see companies and investors routinely myopically attached to gross margin and this just does not make sense!
More focus on gross margin per CAC and less focus on gross margin percentage will do the economy well!
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