Revenue minus the direct cost of delivering the product, expressed as a percentage. Plain-language explainer with examples. Free to read.
Revenue minus the direct cost of delivering the product, expressed as a percentage.
Gross margin = (Revenue − Cost of Goods Sold) ÷ Revenue. COGS for software includes hosting, third-party APIs, payment processing, and any customer-support cost required to keep customers using the product.
Investors use gross margin as a proxy for whether the business is really software. Vertical SaaS commonly runs 70–85%; horizontal SaaS 80–90%+; marketplace take-rate businesses 15–30%; services-heavy 'AI' companies often 40–60% once real inference and human-in-the-loop costs are included. A margin lower than category norms invites hard questions about whether you're a tech company or a services company with software wrapping.
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