Gross margin is the profitability ceiling of the business. It is the money available to pay for overhead, marketing, R&D, and profit. A low margin forces you to scale very high volume to reach operating break-even.
SaaS: (revenue − infrastructure/hosting/support costs) ÷ revenue, from your AWS/GCP cost report + support staff salaries. Fintech: revenue minus payment processing, compliance, and risk infrastructure costs. Ecommerce: selling price minus the product purchase cost (COGS), from your cost spreadsheet or accounting system — Shopify doesn't have this unless you loaded each product's cost yourself. Edtech: revenue minus LMS platform and student support costs.
With a low gross margin (< 40%), every customer you acquire generates little net value. The business is hard to scale because variable costs grow almost at the same pace as revenue.
| Status | Range |
|---|---|
| Healthy | SaaS: > 70% · Fintech: > 50% · Ecommerce: > 35% |
| Alert | SaaS: 50–70% · Fintech: 35–50% · Ecommerce: 20–35% |
| Critical | SaaS: < 50% · Fintech: < 35% · Ecommerce: < 20% |
Gross margin improves in two ways: raise price or lower direct service cost. In SaaS, infrastructure costs typically fall with scale. In Fintech, credit risk and fraud are the main margin destroyers.
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