Gross Margin: Definition, Formula & SaaS Benchmarks
What is Gross Margin?
Gross margin is revenue minus cost of goods sold (COGS), expressed as a percentage of revenue. In SaaS, COGS primarily includes cloud infrastructure costs, customer support, and professional services. High gross margins are the foundation of SaaS unit economics — they determine how much revenue flows down to fund sales, marketing, R&D, and ultimately profit.
Formula
Gross Margin = (Revenue − COGS) ÷ Revenue × 100Worked Example
A company with $100M revenue and $15M in cloud and support costs has an $85M gross profit and an 85% gross margin. A company with $50M revenue and $20M in COGS has a 60% gross margin — typical of infrastructure-heavy SaaS with large telco or compute pass-throughs.
What Good Looks Like
Thresholds derived from live data across 56 public SaaS companies tracked on SaaSDB.
Live Rankings
View full rankings →| Rank | Company | Gross Margin |
|---|---|---|
| #1 | Workday, Inc.(WDAY) | 98.8% |
| #2 | Adobe Inc.(ADBE) | 89.3% |
| #3 | Asana, Inc.(ASAN) | 89.0% |
| #4 | GitLab Inc.(GTLB) | 87.4% |
| #5 | AppFolio, Inc.(APPF) | 84.9% |
| · · · | ||
| #52 | Toast, Inc.(TOST) | 25.9% |
| #53 | Bandwidth Inc.(BAND) | 39.1% |
| #54 | WEX Inc.(WEX) | 40.4% |
| #55 | Shopify Inc.(SHOP) | 48.1% |
| #56 | Twilio Inc.(TWLO) | 48.9% |
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Frequently Asked Questions
What is a good gross margin for SaaS?
Pure-play software SaaS companies typically target 70–85% gross margins. Infrastructure SaaS with significant compute or telco pass-throughs (like CPaaS companies) often run 45–65%. Payments or fintech components further compress blended margins.
Why does gross margin matter so much for SaaS?
Gross margin is the ceiling on operating leverage. A company at 80% gross margin has $80 of every $100 in revenue to invest in growth and eventually convert to profit. A 50% gross margin company starts with only $50 — a structural handicap that compounds over time.
How does NRR affect the value of gross margin?
High NRR amplifies the value of gross margin. If a company retains 120% of ARR annually with 80% gross margins, the incremental revenue from expansion costs almost nothing to serve — producing high-quality incremental margin.