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Gross Margin and SaaS – David Cummings on Startups

One important aspect of Software-as-a-Service (SaaS) that isn’t well understood to first-time entrepreneurs is the role gross margin plays into the business. Gross margin is defined as the percent of revenue left over after the cost of servicing that revenue is taken into account (see SaaS cost of goods sold). For example, with a SaaS company, things like application hosting costs, customer on-boarding costs, customer service costs, and any third-party fees like software licenses or data fees that are required to use the product are included in the calculation.


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