Gross Margin
Gross margin is revenue minus cost of goods sold, expressed as a percentage. Shows how much profit you keep after delivering your product or service.
What Is Gross Margin? Formula and Benchmarks by Industry
Formula: Gross Margin = ((Revenue - COGS) / Revenue) x 100. Example: $100k revenue, $30k COGS, gross margin is 70%. SaaS typically has 80-90% gross margins. E-commerce often 30-50%. Services 40-60%. High gross margin means you can spend more on sales and marketing while staying profitable. Low margin means you need high volume to survive.
Examples
A SaaS company earns $200,000 in monthly revenue and spends $30,000 on hosting and customer support to deliver the product. Gross margin is ($200,000 minus $30,000) divided by $200,000, times 100, which is 85 percent, comfortably inside the typical 80 to 90 percent range for software.