Gross Margin
The percentage of revenue remaining after subtracting the cost of goods sold (COGS), showing profitability before operating expenses.
Why it matters
Gross margin reveals the fundamental profitability of your product. SaaS companies typically have 70-85% gross margins; lower margins may indicate infrastructure or support cost issues.
Formula
Subtract your cost of goods sold from total revenue, divide by revenue, then multiply by 100. COGS for SaaS typically includes hosting, support, and onboarding costs.
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What's a good GM?
SaaS: 70-85%. E-commerce: 30-50%. Services: 40-60%. Manufacturing: 25-40%.
Related metrics
NPM
FinanceThe percentage of revenue that remains as profit after all expenses, taxes, and costs are deducted.
Burn Rate
FinanceThe rate at which a company spends money in excess of income, typically measured monthly.
MRR
SaaSThe predictable revenue a business expects to earn every month from active subscriptions.