Gross Margin Percentage Formula for SaaS Founders
Published on April 13, 2026 · Jules, Founder of NoNoiseMetrics · 8min read
Updated on April 15, 2026
Gross margin percentage is the share of revenue left after paying the direct costs of delivering your product. For SaaS, the gross margin percentage formula is: (Revenue − COGS) ÷ Revenue × 100. If you charge €100/month and it costs €20/month to deliver the service (hosting, support, third-party APIs), your gross margin is 80%. This single number tells investors, acquirers, and serious founders more about the business model quality than almost any other metric. This guide covers the formula, what goes into COGS for SaaS, worked examples, and what benchmarks you should be hitting at each stage.
Gross Margin Percentage = (Revenue − Cost of Goods Sold) ÷ Revenue × 100. In SaaS, COGS includes hosting, support, and third-party service costs directly tied to delivering the product, not salaries, marketing, or office costs.
Gross Margin Percentage Formula
Gross Margin % = (Revenue − COGS) ÷ Revenue × 100Or equivalently:
Gross Profit = Revenue − COGS
Gross Margin % = Gross Profit ÷ Revenue × 100Variable definitions:
- Revenue = total recognized subscription revenue for the period (MRR × months)
- COGS (Cost of Goods Sold) = all costs directly tied to delivering the service to customers
- Gross Profit = Revenue − COGS (the absolute amount left after direct costs)
What Goes Into SaaS COGS
This is where founders most often make mistakes. SaaS COGS is not “everything it costs to run the business”, it is specifically the costs directly incurred to deliver the product to paying customers.
Include in COGS:
| Cost | Example |
|---|---|
| Cloud hosting / compute | AWS, GCP, Azure, Heroku |
| CDN and bandwidth | Cloudflare, Fastly |
| Third-party APIs billed per use | Stripe fees, Twilio, SendGrid |
| Customer support (time directly serving customers) | Support team salaries, helpdesk tools |
| Managed services for data storage | Supabase, PlanetScale, Airtable |
| Onboarding costs (if directly tied to delivery) | Customer success for implementation |
Exclude from COGS (put in Operating Expenses):
| Cost | Goes Into |
|---|---|
| Engineering salaries (product development) | R&D |
| Sales salaries and commissions | S&M |
| Marketing spend | S&M |
| CEO/founder time | G&A |
| Accounting, legal | G&A |
| Office rent | G&A |
The key test: “Would this cost exist if we did not have customers?” If no (e.g., R&D, marketing), it is not COGS. If yes (e.g., hosting scales with customers, support exists because customers have questions), it belongs in COGS.
Worked Example 1: Early-Stage SaaS
Company: €15,000 MRR, 150 customers, 2 founders + 1 support person
Monthly revenue: €15,000
COGS:
| Cost | Amount |
|---|---|
| AWS hosting | €800 |
| Supabase database | €150 |
| Stripe processing fees (2.9%) | €435 |
| Support team (70% of their time is customer-facing) | €2,100 |
| SendGrid (email notifications) | €80 |
| Total COGS | €3,565 |
Gross Profit = €15,000 − €3,565 = €11,435
Gross Margin % = €11,435 ÷ €15,000 × 100 = 76.2%Interpretation: 76.2% gross margin is solid for this stage. As revenue scales, the fixed components (hosting base cost) become a smaller percentage, so gross margin should improve toward 80%+.
Worked Example 2: Mid-Stage SaaS with Enterprise Support
Company: €85,000 MRR, mix of self-serve and enterprise customers, 3 support team members
Monthly revenue: €85,000
COGS:
| Cost | Amount |
|---|---|
| AWS (compute, storage, data transfer) | €4,200 |
| CDN (Cloudflare) | €380 |
| Stripe fees (~2.5% blended for enterprise invoices + cards) | €2,125 |
| Customer support team (3 FTEs, fully allocated to COGS) | €14,400 |
| Customer success (2 FTEs, enterprise onboarding) | €9,600 |
| Third-party integrations (Twilio, data enrichment APIs) | €850 |
| Total COGS | €31,555 |
Gross Profit = €85,000 − €31,555 = €53,445
Gross Margin % = €53,445 ÷ €85,000 × 100 = 62.9%Interpretation: 62.9% is below target for software-only SaaS. The main driver is the customer success team fully allocated to COGS, typical for enterprise SaaS where onboarding is labor-intensive. The company should investigate whether customer success can be partially reallocated to growth (sales support), which would move some of that cost to S&M and improve reported gross margin.
SaaS Gross Margin Benchmarks
| Stage / Type | Gross Margin Benchmark | Notes |
|---|---|---|
| Pure software (no support) | 80–90% | Minimal COGS beyond hosting |
| Self-serve SaaS | 75–85% | Stripe fees + basic support |
| SMB SaaS with support | 70–80% | Support team in COGS |
| Mid-market SaaS | 65–75% | CS team + more complex infra |
| Enterprise SaaS (services-heavy) | 55–70% | Significant CS and onboarding in COGS |
| Vertical SaaS with data components | 60–75% | Data costs matter |
Why this matters for fundraising:
According to OpenView Partners’ SaaS benchmarks, top-quartile SaaS companies at Series A typically have 75%+ gross margins. Below 60% requires significant explanation, investors view it as a scaling problem or a services company dressed as a SaaS company.
At acquisition, gross margin directly affects valuation multiples. A buyer paying 5× ARR for a 80% gross margin SaaS business is paying 6.25× gross profit. The same multiple on a 50% gross margin business implies 10× gross profit, a much less attractive deal from the buyer’s perspective.
Gross Margin % vs Gross Margin (Absolute)
Gross margin percentage is for benchmarking and tracking efficiency. Gross margin dollars are for understanding how much you have to invest in growth.
Why both matter:
A company with €500,000 MRR and 70% gross margin generates €350,000/month in gross profit to fund sales, marketing, R&D, and G&A. A company with €50,000 MRR and 85% gross margin generates €42,500/month. The first has more absolute dollars to invest in growth even though its margin percentage is lower.
Early-stage companies often optimize for margin percentage prematurely. The right order: first establish that the unit economics are sound (margin % above 65%), then focus on growing the absolute gross profit pool.
For a complete picture of profitability, see SaaS gross margin, profit vs revenue, and EBIT vs EBITDA for SaaS.
How to Improve SaaS Gross Margin
1. Optimize infrastructure costs
Audit your AWS/GCP bill monthly. Reserved instances vs on-demand can cut compute costs 30–40%. Review data egress, this is often the largest scaling cost that founders overlook.
2. Move support to self-service
Every support ticket that gets replaced by a help article, in-app tooltip, or automated onboarding flow reduces your support COGS. Track tickets per customer per month, it should decrease as the product matures.
3. Reduce Stripe processing fees
Negotiate Stripe volume discounts once you exceed €100k/month in processing. Switch high-value annual customers to ACH/SEPA bank transfer (typically 0.8% cap vs 2.9% + €0.30 for cards).
4. Reclassify costs correctly
Review whether customer success salaries belong in COGS or S&M. CS that primarily drives expansion and upsell should be in S&M. CS that primarily handles support and retention belongs in COGS. The right classification makes gross margin a more accurate signal.
5. Raise prices
If COGS is relatively fixed per customer, price increases flow directly to gross margin. Doubling your price while keeping COGS flat goes from, say, 70% to 85% gross margin on the same product.
Track from Stripe. NoNoiseMetrics shows you MRR alongside your Stripe processing fees so you can see the exact impact on gross margin each month. Try free
FAQ
What is gross margin percentage?
Gross margin percentage = (Revenue − COGS) ÷ Revenue × 100. It expresses how much revenue remains after paying the direct costs of delivering the product. A 75% gross margin means 75 cents of every euro of revenue is available for operating expenses and profit.
What is a good gross margin for SaaS?
70%+ is the minimum healthy benchmark for software SaaS. 75–85% is typical for well-run self-serve SaaS. Enterprise SaaS with significant services components can run 60–70% without concern. Below 60% raises questions about the cost structure or business model.
What should SaaS companies include in COGS?
Infrastructure (hosting, database, CDN), payment processing fees, customer support team costs, and any third-party services billed per usage or per customer. Exclude engineering (R&D), sales, marketing, and G&A.
How is gross margin different from net margin?
Gross margin only subtracts COGS. Net margin subtracts all costs. COGS, operating expenses, interest, and taxes. Gross margin measures product unit economics. Net margin measures overall business profitability. For more, see profit vs revenue.
Can gross margin be too high?
In practice, no, higher gross margin means more money to reinvest. But very high gross margin (90%+) sometimes indicates underinvestment in customer success, which can hurt retention. If churn is high and gross margin is high, investigate whether the support cost is just being deferred into churn.
How does gross margin affect SaaS valuation?
Directly. Investors and acquirers apply revenue multiples to SaaS companies, and those multiples are partially driven by gross margin. Higher gross margin companies command higher multiples because each euro of revenue contains more profit. A 5× ARR multiple assumes substantially different returns on an 80% margin business vs a 50% margin business.
How often should you calculate gross margin?
Monthly. Track it as a percentage (trend) and as an absolute dollar amount. If gross margin percentage is falling month over month, investigate which COGS category is growing faster than revenue.
How does gross margin relate to net profit margin?
Gross margin is the first profitability stop: revenue minus direct delivery costs. Net profit margin subtracts everything, operating expenses (S&M, R&D, G&A), interest, and taxes. SaaS companies can have 80% gross margin and still be unprofitable at the net level if they’re investing heavily in growth. See net profit margin for SaaS for the full calculation.
Related Reading
- SaaS Gross Margin, comprehensive benchmarks and what moves the number
- Profit vs Revenue, the difference between gross profit and net profit
- EBIT vs EBITDA for SaaS, profitability measures beyond gross margin
External resources:
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