How do I calculate gross margin in SAAS businesses?
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.