Revenue minus cost of goods sold, expressed as a percentage. For SaaS, this is typically 70-85%.
(Revenue - COGS) / Revenue × 100
Higher is better · Unit: percentage
How to Improve
Reduce hosting and infrastructure costs through architecture optimization and vendor negotiation. Automate support and onboarding to reduce per‑customer service costs. Shift from managed services to self‑serve to lower cost of delivery. Renegotiate third‑party data and API costs as you scale. Increase pricing to reflect the value delivered without proportionally increasing COGS.
Ehsan's Analysis
SaaS gross margin "should be" 70-80%+ and investors will tell you this number matters for valuation multiples. What they do not tell you is that gross margin is easily manipulated by how you classify hosting costs, support staff, and customer success teams. A company reporting 82% gross margin might be classifying half their support team as "sales" expense. Zuora data shows that when gross margins are standardized (hosting + support + CS + third-party infrastructure all included), the median drops from 75% to 62%. The companies with genuinely high gross margins (85%+) — Veeva, Atlassian, Adobe — share one trait: minimal professional services and low-touch support. If your product requires a dedicated CSM per account, your real gross margin is 55-65% regardless of what your P&L says. Investors are waking up to this — standardized gross margin is now a due diligence item in Series B+ rounds.
EJ
Ehsan Jahandarpour
AI Growth Strategist & Fractional CMO
Forbes Top 20 Growth Hacker · TEDx Speaker · 716 Academic Citations · Ex-Microsoft · CMO at FirstWave (ASX:FCT) · Forbes Communications Council
Frequently Asked Questions
What is a good Gross Margin for SaaS companies at Seed stage?
The median Gross Margin for SaaS companies at the Seed stage is 73.6%. Top‑quartile companies (75th percentile) significantly outperform this baseline. The most important factor is consistent improvement over time rather than hitting any single target number.
How does Gross Margin differ by company stage in SaaS?
Gross Margin typically improves as SaaS companies mature from seed through growth stage. Earlier‑stage companies should benchmark against stage‑appropriate peers rather than comparing themselves to mature companies.
How often should SaaS companies measure Gross Margin?
SaaS companies at the Seed stage should track Gross Margin monthly with quarterly deep‑dive analysis. Set up automated dashboards and alerts for significant deviations from your baseline.
What factors most impact Gross Margin in the SaaS sector?
In SaaS, the primary factors impacting Gross Margin include product‑market fit maturity, competitive landscape intensity, customer segmentation strategy, pricing optimization, and operational efficiency. Seed‑stage companies should focus on the one or two highest‑leverage factors rather than trying to optimize everything simultaneously.
How does Gross Margin for SaaS compare to cross‑industry benchmarks?
SaaS Gross Margin benchmarks tend to be among the highest across industries due to the inherently low marginal cost of software delivery. Always compare against industry‑specific benchmarks rather than broad averages for meaningful insights.