What Is Gross Margin?

The percentage of revenue remaining after subtracting the cost of goods sold (COGS).

Gross margin is the percentage of revenue that remains after subtracting the direct costs of delivering your product (Cost of Goods Sold). For SaaS companies, COGS typically includes hosting, infrastructure, customer support, and third-party software costs.

Healthy SaaS gross margins range from 70-85%. Companies with lower gross margins may have high infrastructure costs, heavy customer support needs, or significant third-party costs.

Gross margin is important for valuation — investors use it to understand the true scalability of the business. Higher margins mean more of each revenue dollar flows to growth investment and profit.