Gross Margin

Gross margin measures the profitability of your core product or service before accounting for operating expenses like sales, marketing, and R&D. It is calculated by subtracting the Cost of Goods Sold (COGS) from revenue, dividing by revenue, and multiplying by 100.

For SaaS companies, COGS typically includes hosting and infrastructure costs, third-party software fees, customer support costs, and payment processing fees. SaaS businesses generally target gross margins of 70–85%, which is higher than most industries because software has near-zero marginal cost.

Gross margin matters because it determines how much of each revenue dollar is available to fund growth, product development, and customer experience programs. A company with 80% gross margin has far more flexibility than one with 50%.

From a CX perspective, gross margin influences how much you can invest in customer success, support, and feedback programs. If support costs are dragging down gross margin, self-service tools, better documentation, and AI-powered analysis can reduce cost-to-serve while actually improving the customer experience.