SaaS Gross Margin Calculator
Gross margin for a subscription product from its real costs of service — hosting, third-party services, support, payment fees and onboarding — each shown as a share of revenue.
Software has no cost of goods in the factory sense, but it has costs of serving each customer: the infrastructure the product runs on, the services it calls, the people who support it, the fees taken on every payment and the work of getting a customer live.
How the saas gross margin calculator works
Software has no cost of goods in the factory sense, but it has costs of serving each customer: the infrastructure the product runs on, the services it calls, the people who support it, the fees taken on every payment and the work of getting a customer live. Those are the cost of revenue; everything else is operating expense.
Gross margin is what is left after them as a share of revenue. Most subscription businesses aim for 75% or more; each row shows which cost is pulling the figure down.
Formula: cost of revenue = hosting + third-party services + support + revenue × payment fee + onboarding; gross margin = (revenue − cost of revenue) ÷ revenue
Worked examples
| Inputs | Gross margin | Note |
|---|---|---|
| Mid-market product | 73.1% | 26,900 cost of revenue |
| Lean self-serve | 87.1% | 12,900 cost of revenue |
| Implementation-heavy | 51.1% | 48,900 cost of revenue |
FAQFrequently asked questions
What belongs in cost of revenue for software?
Whatever is spent to deliver the service to paying customers: hosting and infrastructure, third-party services the product depends on, the support and success teams, payment processing, and onboarding or implementation work. Sales, marketing, product development and administration are operating expenses, not cost of revenue.
What is a good gross margin?
Seventy-five percent or above is typical of pure software; eighty to ninety for products with little support and cheap infrastructure. A margin in the sixties usually means heavy support or implementation, and below that the business is closer to a service.
Should engineering count?
Only the part that keeps the service running — on-call, reliability, capacity — and many businesses leave even that in research and development. Be consistent: the figure is only useful against your own history and against peers who count the same way.
Why show each cost as a share of revenue?
Because that is how the margin improves — hosting that grows more slowly than revenue, support that scales through self-service, fees renegotiated as volume rises. Each row is a lever, and the largest is usually the one worth pulling first.
Where these figures come from
- Reichheld (2003), Harvard Business Review — The One Number You Need to Grow — the paper that introduced Net Promoter Score
- US Securities and Exchange Commission — the US securities regulator
Last checked: September 2026. These are the industry-standard definitions; where companies commonly disagree, the page says so.