Gross margin

Q: What is a good gross margin for SaaS?

For software, 70–80% is a healthy gross margin and 80% or more is best-in-class. Between 60% and 70% is acceptable but worth improving, and below 60% is weak for pure SaaS — it usually points to heavy infrastructure or support costs that need to come down.

Q: What counts as COGS in SaaS?

SaaS cost of goods sold covers the direct cost of delivering the service: cloud hosting and infrastructure, customer support and success staff, payment-processing fees, and any third-party APIs or data you pass through. Sales, marketing, R&D, and general overhead are not COGS — they sit below the gross-margin line.

Q: Why does gross margin matter?

Gross margin sets the ceiling on every other metric. It determines how much of each euro of revenue is left to cover acquisition, product, and profit, so a higher margin lets you spend more to win customers and recoup it faster. Most SaaS unit-economics calculations multiply revenue by gross margin for exactly this reason.

The share of each euro of revenue that's left after paying the direct cost of delivering your product — the profit you have to work with before any other expense.

In plain English

Gross margin tells you how much of your revenue survives once you've covered the cost of actually delivering the product. For SaaS that direct cost — the cost of goods sold, or COGS — is things like cloud hosting, customer support, payment fees, and any third-party APIs you pass through. Whatever's left over is what funds everything else: acquisition, product development, and profit. Software is prized by investors precisely because that leftover slice is so large — a well-run SaaS keeps 70 to 80 cents of every euro, far more than a physical-goods business ever could.

The formula

Gross margin % = (Revenue − COGS) ÷ Revenue

The trick is drawing the COGS line correctly: only direct delivery costs belong above it — hosting, support, payment processing, third-party data — while sales, marketing, and R&D sit below.

A worked example

Say you bill €1,000,000 in revenue over the year, and the direct cost of running the product — hosting, support, payment fees, APIs — comes to €200,000.

Gross margin = (€1,000,000 − €200,000) ÷ €1,000,000 = 80%

So 80 cents of every euro is yours to spend on growth and profit. If hosting costs crept up and COGS doubled to €400,000, margin would drop to 60% — and suddenly every acquisition and payback calculation gets a third tighter.

What's a good gross margin?

For pure software, the bar is high — here's how SaaS gross margins are usually read:

Gross margin	Verdict	Typical read
80%+	Best-in-class	Efficient, scalable SaaS
70–80%	Good	Healthy software economics
60–70%	Acceptable	Room to improve infra/support
< 60%	Weak	Heavy delivery cost, or not pure SaaS

Margin matters because it caps everything downstream: the higher it is, the more you can afford to spend on acquisition and the faster you recoup it. That's why CAC payback is calculated on margin, not raw revenue.

Frequently asked questions

What is a good gross margin for SaaS?

For software, 70–80% is a healthy gross margin and 80% or more is best-in-class. Between 60% and 70% is acceptable but worth improving, and below 60% is weak for pure SaaS — it usually points to heavy infrastructure or support costs that need to come down.

What counts as COGS in SaaS?

SaaS cost of goods sold covers the direct cost of delivering the service: cloud hosting and infrastructure, customer support and success staff, payment-processing fees, and any third-party APIs or data you pass through. Sales, marketing, R&D, and general overhead are not COGS — they sit below the gross-margin line.

Why does gross margin matter?

Gross margin sets the ceiling on every other metric. It determines how much of each euro of revenue is left to cover acquisition, product, and profit, so a higher margin lets you spend more to win customers and recoup it faster. Most SaaS unit-economics calculations multiply revenue by gross margin for exactly this reason.

CAC payback period · Rule of 40 · Burn multiple · LTV:CAC ratio

Learn more

The complete guide to value-based bidding · Value-based bidding without a data team