Skip to content
All termsFINANCE & PRICING

Gross Margin

DEFINITION

The percentage of revenue left after deducting the direct cost of delivering the service (hosting, support, payment fees).

In depth

For SaaS, gross margin is typically 70–85%. Below 70% usually means infrastructure or support costs are eating too much of each dollar. Above 85% often signals the business isn't yet paying for the customer success it needs.

Unlike marketing or sales costs, gross margin is inside every pricing decision. Drop the price and you lower revenue; drop the hosting cost and you lift margin permanently.

Formula & example

Gross Margin = (Revenue − COGS) ÷ Revenue
EXAMPLERevenue $1M, hosting + support + payment fees = $180K → Gross Margin = ($1M − $180K) ÷ $1M = 82%.

Rules of thumb

  • SaaS target: 70–85%. Public SaaS median is ~75%.
  • Under 60% is unusual for pure SaaS — investigate the cost structure.
  • Use gross margin in LTV, not revenue.

Related terms

USE THIS IN A REAL PLAN

Turn concepts into a real SaaS blueprint

PlanMySaaS runs Gross Margin and every other SaaS metric for your idea — part of a full blueprint with architecture, feature specs, 21 docs, and Cursor-ready prompts.

Last reviewed 14 April 2026 by Abhi Verma.