I was recently speaking with an e-commerce entrepreneur about his company’s gross margin. I define gross margin as that after not only product costs, but also other variable costs associated with the delivery of an order (including warehousing, shipping, and payments) have been deducted. He was using my definition of product margin as his definition of gross margin, and thereby presenting a much higher figure for gross margin than was actually the case.
This can happen because of two reasons: a genuine confusion over the definition of a metric or an intent to deceive. In this case I’m pretty sure it was the former. Whatever the reason, it’s important to explicitly clarify the definitions of metrics in discussions.
Andreessen Horowitz recently published a great post with more examples of the most commonly confused startup metrics here.