Gross Margin
Gross margin measures profitability after COGS. Formula: Gross margin = (Revenue − COGS) ÷ Revenue. Use this calculator to assess product profitability before operating expenses. Provide revenue and COGS to see gross profit and margin, helpful for pricing and unit economics decisions.
What is gross margin?
Gross margin shows how much of each revenue dollar remains after paying direct costs of delivery (COGS). It reflects pricing power and unit economics before operating expenses.
Why it matters
- Indicates product profitability and scalability potential.
- Higher margins provide more room for sales, marketing, and R&D.
- Investors often benchmark SaaS gross margins at 70–85%.
How to calculate
Gross margin (%) = (Revenue − COGS) ÷ Revenue × 100. COGS should include hosting, third‑party delivery, support tied to usage, and payment fees.
Example
Revenue $500,000.00, COGS $200,000.00 ⇒ Gross profit $300,000.00, margin 60.0%.
Common pitfalls
- Excluding variable support or cloud costs from COGS inflates margin.
- Mixing services revenue with software revenue can skew margins.
- Not segmenting by plan or product hides margin differences.
FAQ
What’s a good SaaS gross margin? 70–85% is typical for mature SaaS; infra‑heavy platforms may be lower.
Does customer support belong in COGS? If it scales directly with product delivery, include an appropriate share.
How does discounting affect margin? Discounts reduce revenue and therefore margin; track discount impact separately.