How do I calculate gross margin in SAAS businesses?

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JASON LEMKIN

While GAAP rules allow some flexibility here, generally most SaaS companies include:

  • Hosting costs. E.g., AWS.
  • Customer support costs. The salaries and expense of your support team.
  • A % of Customer success costs. Often some % of their salaries and costs go into gross margin.

Add those together, your gross margins in SaaS should generally be in the 70%-80%.

Whatever you do, don’t present 95%+ gross margins. That just means you’re leaving things out.

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Published on April 18, 2018
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