What are SaaS Gross Margins
Your SaaS gross margin is your total revenue minus cost of goods sold (COGS). COGS is your bucket of expenses that directly supports tout of your revenue streams. COGS can also be called our cost of revenue or cost of operations.
The gross margin formula below is not unique to SaaS companies. It’s applicable to all companies and must be measured on a monthly basis.
Understanding your SaaS gross margin and revenue stream margins is key to proactive financial management.
Total Revenue – Support – Services – Customer Success – Dev Ops = Gross Profit
How to Calculate SaaS Gross Margins
A couple notes on gross margins. Support is your technical support. Services is professional services and/or onboarding/set up. Customer success belongs in COGS if they do NOT sell or carry a quota. Dev Ops (I also call this COO, cost of operations) houses your hosting, third-party product costs, royalties, R&D amortization, etc.
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Download the SaaS Gross Margin slides below.
Additional SaaS Resources
How to Properly Calculate SaaS Gross Margins at The SaaS CFO