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The Ultimate Subscription Gross Margin Cheat Sheet

Unlike most other SaaS metrics, subscription gross margin can be pretty tough to improve. Our cheat sheet explains why and will give you all the basics you need to know about this important SaaS metric, including why it matters and how to calculate it for your business.

Subscription gross margin: A core indicator of profitability

Revenue isn't the only measure of a SaaS company's success. Profitability matters, too. And in SaaS, that’s measured in terms of subscription gross margin. 

Subscription gross margin is the single most important metric for determining profitability for a SaaS business. The higher your gross margin, the more profitable and sustainable your business model becomes.

This cheat sheet distills everything you need to know about subscription gross margin, into a single page, explaining what it is, why it matters, along with:

  • The formula for subscription gross margin and an example calculation

  • The most common expenses that impact a SaaS company’s gross margins

  • Industry benchmarks for SaaS companies across different ARR ranges

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“Gross margin is a reflection of how valuable a dollar of revenue is to the business… Margin is one of the main reasons a $10 million revenue company can be more valuable than a $100 million revenue company.”

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