SaaS Gross Margin
3 variables determine your SaaS gross margin:
Grab yours high-res PDF at:
- How clearly you identify COGS
- How accurately you classify expenses
- How deeply you analyze revenue streams
A solid SaaS margin analysis focuses on 1 and 3…
How clearly you identify and analyze your costs and revenue.
Why?
Well, first, because any calculation has to be accurate to provide real insights.
This is done with:
- Correct COGS breakdowns
- Detailed expense allocation
- Understanding all revenue sources
Second, SaaS margin analysis requires breaking down COGS into finer details.
While other industries can get away with a broad-strokes approach...
…SaaS companies need to know the specifics of expenses like Support, Customer Success, and DevOps.
This is just a reflection of the SaaS business model—
It’s about financial clarity and understanding your cost structure for better decision-making.
This means that, if your gross margin is unclear, there are two culprits at play (likely both):
- Misclassification of COGS
You need to ensure every expense is properly categorized.
The most effective way of doing this?
Review your P&L regularly and ensure your COGS aligns with your revenue streams.
- Oversimplification of costs
Put yourself in the CFO's shoes whenever you calculate your gross margin—
Ask yourself, “Is this breakdown providing the insights I need to improve profitability?”
If you do both those things...
…you’re guaranteed to see improvement in both your financial clarity and margins.