SaaS gross margin benchmarks
Healthy SaaS gross margins are typically 70–85%. Learn what counts in cost of goods sold for SaaS, why margin matters, and how it affects LTV and the Rule of 40.
Gross margin is the percentage of revenue left after the direct cost of delivering your product (cost of goods sold). For software it is high because each additional customer costs relatively little to serve — which is what makes SaaS attractive.
The benchmark: 70–85%
Most healthy SaaS businesses run gross margins of 70–85%. Pure software often sits at the top of that range; products with heavy usage-based infrastructure, payments, or human services in delivery tend to be lower.
What goes into SaaS COGS
- Hosting and infrastructure (cloud compute, storage, bandwidth).
- Third-party software and APIs used to deliver the product.
- Customer support and customer success (delivery portion).
- Payment processing fees.
Why margin matters
Gross margin sets the ceiling on everything: it determines how much each customer really contributes, which drives LTV, CAC payback and your ability to spend on growth. It is also a key input to the Rule of 40.
How to improve gross margin
- Optimise cloud spend and architecture efficiency.
- Move support to self-serve and documentation where possible.
- Re-price low-margin tiers or usage.
- Automate manual delivery steps.
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Open the SaaS Metrics CalculatorFrequently asked questions
What is a good gross margin for SaaS?
Typically 70–85%. Pure software trends toward the higher end; products with heavy infrastructure or services in delivery sit lower.
What is included in SaaS cost of goods sold?
Hosting/infrastructure, third-party APIs, the delivery portion of support and success, and payment processing. Sales, marketing and R&D are excluded.
Why is gross margin important for fundraising?
It determines unit economics and scalability. Low gross margins cap LTV and the Rule of 40, and investors scrutinise them closely.