Unit economicsMetric 16 of 35

Gross Margin

How much revenue remains after the direct cost of serving customers.

The percentage of revenue left after direct delivery costs: hosting, support tied to delivery, payment processing, data providers, and other COGS. For SaaS, gross margin is the ceiling on every other efficiency metric.

Formula

Gross Margin = (Revenue − COGS) ÷ Revenue

Worked example

Revenue $100,000, COGS $22,000 → Gross Margin = 78%.

Benchmark

SaaS quality

Excellent

80%+

Healthy

70–80%

Concerning

< 60%

Why it matters

Gross margin decides how much revenue can become product, sales, or profit. It also feeds LTV and CAC payback directly: using revenue instead of gross profit makes unit economics look better than they are. Investors expect software-like margins; below 60%, they'll ask whether you're really SaaS or a services business.

Common mistakes

Excluding payment processing or customer support costs because they feel small.
Using gross margin inconsistently between LTV and payback calculations.
Comparing a services-heavy implementation business to pure software benchmarks.

Tracked in FlowMRR

Not tracked — FlowMRR has no COGS data; it supplies the revenue side (MRR, ARPU) you'd divide COGS into.

Track Gross Margin in FlowMRR