What is Gross Margin?
Gross Margin is a core concept in modern B2B revenue. Here is a clear, accurate definition, why it matters, and how Ardovo handles it.
Short answer
Gross margin is the percentage of revenue left after subtracting the direct cost of delivering the product or service, known as cost of goods sold. For SaaS this includes hosting, support, and third-party fees. High gross margin, common in software, means most revenue is available to fund growth and profit.
Key takeaways
- Revenue minus cost of goods sold, as a percentage.
- For SaaS, COGS covers hosting, support, and delivery.
- High gross margin funds growth and profit.
- A key input to LTV and unit economics.
Why it matters
Gross margin determines how much of each revenue dollar is actually yours to reinvest. Software's high margins are what let SaaS companies spend heavily on growth and still reach profitability.
How Ardovo handles it
Ardovo keeps recurring revenue and one-time or services revenue separate, which helps finance compute gross margin accurately by revenue type rather than lumping everything together.
Frequently asked questions
What counts as cost of goods sold in SaaS?
Typically hosting and infrastructure, customer support and success costs tied to delivery, third-party software fees embedded in the product, and payment processing. It excludes sales, marketing, and R&D.
What is a good SaaS gross margin?
Healthy software businesses often run 70 to 85 percent gross margin. Lower margins can signal heavy infrastructure or services costs that limit how much revenue is available to fund growth.