Revenue Metrics

SaaS Gross Margin

The percentage of revenue remaining after deducting the direct costs of delivering the software service.

Gross margin is the foundation of SaaS unit economics. Direct costs include hosting, third-party APIs, customer support, and customer success — the costs that scale with customers served. Mature SaaS businesses typically achieve 70–85% gross margins, reflecting the high operating leverage of software: the marginal cost of serving one more customer is far lower than in physical goods businesses. Gross margin directly affects how much capital is available to fund sales, marketing, and R&D — two businesses with the same revenue but 60% versus 80% gross margins have dramatically different investment capacities. Gross margin is also embedded in almost every financial metric: LTV, payback period, and Rule of 40 all depend on it. Infrastructure-heavy SaaS or services-attached software tends to have lower gross margins than pure-play software businesses.