Gross Margin
B2B SaaS Pricing Glossary
Gross margin is the percentage of revenue remaining after subtracting the direct costs of delivering the service — including hosting, infrastructure, customer support, and third-party software costs. For SaaS companies, gross margin typically ranges from 70-85%.
Definition
SaaS gross margin is calculated as (Revenue - Cost of Goods Sold) / Revenue. COGS for a SaaS company includes hosting and infrastructure costs, customer support and success team salaries, third-party API costs, payment processing fees, and data costs. It does not include sales, marketing, engineering, or G&A — those are operating expenses.
Gross margin matters for pricing because it sets the ceiling on how much you can spend to acquire and retain customers. A company with 80% gross margin has far more room for sales and marketing investment than one at 60%. It also signals whether your pricing is healthy — if gross margins are declining, it often means costs are scaling faster than revenue, which may indicate a pricing or packaging problem.
Why It Matters for B2B SaaS
SaaS investors view gross margin as a proxy for business quality and scalability. The benchmark for best-in-class SaaS is 75-85% gross margin. Companies below 70% face questions about whether they are truly software businesses or services businesses with software. Gross margin also directly impacts unit economics — a 10-point difference in gross margin compounds dramatically at scale and affects how much you can invest in growth.
FAQs
What is a good gross margin for a SaaS company?+
Best-in-class SaaS companies achieve 75-85% gross margin. Companies below 70% may face investor concerns about scalability. Infrastructure-heavy products (video, data processing) often have lower margins in the 60-70% range but can compensate with higher retention and expansion. The key is trending in the right direction as you scale.
How does gross margin affect SaaS pricing?+
Gross margin determines how much you can invest in acquiring and serving customers. If your gross margin is 80%, you have 80 cents of every dollar to cover operating expenses and generate profit. Low gross margins constrain growth — you cannot outspend competitors on sales and marketing if your unit economics are worse. Pricing should be set to maintain healthy margins while delivering clear value.
Deep Dives on Gross Margin
Not sure if you're tracking the right pricing metrics?
Get expert eyes on your pricing in a focused 60-minute session. Walk away with specific recommendations on the metrics that matter most for your growth stage.
Book a Strategy Review