Definition
Gross margin is the percent of revenue remaining after direct costs of delivering the product (COGS), including hosting, support, and sometimes onboarding services.
Answer-first summary
Gross Margin: Gross margin is the percent of revenue remaining after direct costs of delivering the product (COGS), including hosting, support, and sometimes onboarding services.
Formula
Gross Margin (%)
Gross Margin = (Revenue - COGS) / Revenue
- Revenue: Recurring subscription revenue (plus any included revenue stream)
- COGS: Direct costs: infra, support, third-party usage costs
Revenue $100k, COGS $20k → gross margin = 80%.
Directional SaaS Gross Margin Benchmarks
Benchmarks vary widely by industry, ACV, go-to-market motion, geography, and measurement method. Treat these as directional ranges, not targets.
| Segment | P25 | P50 | P75 | Notes |
|---|---|---|---|---|
| B2B SaaS (general) | 70–75% | 75–85% | 85–90% | — |
| Usage-based (infra heavy) | 55–65% | 65–75% | 75–85% | — |
Sources
- Directional industry ranges (compile from public SaaS benchmark reports)
How to improve
- Optimize infrastructure costs and vendor spend.
- Improve support efficiency and self-serve help.
- Adjust pricing to reflect usage costs.
Common pitfalls
- Excluding support from COGS inconsistently.
- Treating variable vendor costs as fixed.
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FAQ
- What belongs in SaaS COGS?
- Typically hosting, infra, customer support, and sometimes onboarding/pro services if required to deliver value.
- Can gross margin be too high?
- High margins are great, but ensure pricing matches value and you’re not under-investing in reliability/support.
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