What should go into costs of goods sold for a SaaS business?

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You don’t need to be a CFO (or even have a finance background) to get this. But knowing how gross margin works—and what it says about your business—can be the difference between a confident investor pitch and a credibility-killing fumble.

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Let’s break it down.

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What Is Gross Margin %?

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Here’s the simplest version of the formula:

Gross Margin % = (Revenue – COGS) ÷ Revenue

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That’s it.

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Gross margin tells you how efficiently your company delivers its product or service. In other words: after covering the direct costs of serving your customers, how much money do you keep?

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What Counts as COGS in a SaaS Company?

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COGS = Cost of Goods Sold. But in SaaS, you’re not shipping physical goods—so what goes into this bucket?

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Typical COGS for a software company might include:

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• Cloud infrastructure (e.g., AWS, GCP, Azure)
• Third-party APIs tied directly to your product
• Customer support or success teams (if cost scales with user count)
• DevOps / Infrastructure engineers (sometimes included, depending on team structure and maturity)

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These are the recurring costs you have to incur to deliver your product. Not optional. Not overhead. And definitely not marketing.

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💡 Pro tip: Many early-stage founders underreport COGS because they lump everything into “operating expenses.” That leads to inflated gross margins and confusion later.

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Why Gross Margin % Actually Matters

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So why should you, as a founder, care about gross margin before you’re even generating meaningful revenue?

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1. Investors care—a lot.

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Gross margin tells them whether you’re building a true software business—or just a services company with some code on top. If your gross margin is low (say, under 60%), it raises questions about scalability and pricing.

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2. It reveals your scalability ceiling.

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High gross margins (think 70–90%) mean you can reinvest more into product, growth, and team. It shows your product can serve more customers without cost growing linearly.

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3. It impacts your runway.

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Gross margin influences your burn rate more than you might think. Two companies with the same revenue can have vastly different runways depending on their cost structure.

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A Quick Example

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Let’s say:

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• Your SaaS product generated $100,000 in revenue last month
• You spent $20,000 on cloud hosting, support, and API usage

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Gross Margin = (100,000 – 20,000) ÷ 100,000 = 80%

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That’s healthy. Investors see an 80% margin and think: “OK, this founder understands unit economics and has a path to real scale.”

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How to Track Gross Margin (Without a CFO)

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You don’t need a full finance team to track gross margin accurately. Here’s how to stay on top of it:

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✅ Separate your COGS from general expenses in your bookkeeping

✅ Reconcile monthly and make sure you’re categorizing cloud + support costs properly

✅ Update your gross margin in your internal dashboard or investor updates

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If your books are messy or you’re not sure where to start—that’s where we come in.

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Final Word: It’s Not About Being Perfect, It’s About Being Prepared

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Founders often worry that their numbers aren’t “good enough” to share. But here’s the truth:

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Investors don’t expect perfect metrics. They expect founders who know their metrics.

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Start with gross margin. It’s one of the clearest signals that you’re building a real, scalable software business—and that you’re ready to grow it like one.

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Need help tracking gross margin, burn, or getting investor-ready?

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We help early-stage founders like you clean up the back office so you can focus on building.

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📩 Let’s talk.