Gross Margin
Definition
Gross margin is revenue minus the direct costs of delivering the product (COGS), expressed as a percentage of revenue. Software typically runs 70 to 90 percent.
How it comes up in fundraising
Gross margin determines how much of each dollar funds growth; investors discount “software” valuations for companies whose margins reveal a services or hardware business underneath.
Frequently asked questions
What counts as COGS for SaaS?
Hosting and infrastructure, third-party API costs tied to usage, customer support, and any human service required to deliver the product.
Why do AI startups face margin questions?
Model inference costs sit in COGS and can push margins well below classic SaaS, so investors probe how margins improve with scale.
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