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%.

Illustrative comparisons

SaaS quality

These unsourced ranges are illustrative scenarios, not measured industry benchmarks, percentiles or recommended targets. Their qualitative labels are editorial interpretations. Compare your own cohorts using the same segment, period, currency and measurement basis.

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.

Track Gross Margin in FlowMRR