| DKII said: So your idea is basically that the gross margins are currently positive, and that if yearly sales tripled, the gross profits would also triple, but the "other" costs would remain the same, thus there would be billions in profit? I'm not sure that idea really holds water, since not all of those costs would be fixed (distribution/shipping particularly). |
Yes. Gross Margins should be fairly similar with the increase in volume. That is the Cost of Sales will not increase in a significant way if sales triple.
So if you sell 8.7 million consoles or 25 million consoles at the same price, then yes, the gross margins should be the same (or even less with economies of scale).
As for expenses - NO, they won't be the same. Selling, admin and other expenses will increase - but it wont mirror the increase in sales.
In this calculation, I took that into account and added an additional 20% to 30% to take the increased volume into account.
But of course, I didn't assume that expenses will also triple, if sales triple.
More of inline what other companies have.
In this example - if Nintendo spends about $300 million in marketing on sales of $18 billion, then if msft sales are also the same, then it doesnt make sense that they would spend about $3.5 billion. It may be more than $300 million if their products are more R&D intensive, but it would not be $3.5 billion - because that figure does not make sense.
