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The Importance of Gross Margins

Ravi Belani, Stanford Engineering

Stanford Department of Management Science and Engineering lecturer Ravi Belani illustrates the crucial importance of “gross margins” using a simple analogy about selling cookies on the Stanford campus. He explains how a single ratio — a gross margin of 75% — is a mathematical yet almost magical key to building a business that can grow at a 3x clip per year, and turn a $1 million valuation into a $1 billion valuation in a decade.