Growth is more valuable when delivery leaves a contribution.
Gross profit is revenue less the cost of goods or services sold. Gross margin expresses that profit as a share of revenue. SaaS delivery costs can include hosting, third-party usage and service staff, depending on the accounting policy.
Consistency matters more than a flattering classification. Moving delivery costs into operating expense improves the displayed gross margin without changing total profit. Compare like-for-like policies and business models.
The formula, made clear.
- COGS
- Direct costs matched to the revenue in the same period.
- Gross margin
- A percentage of revenue, not a markup on cost.
Put the numbers in context.
$500,000.00 revenue less $150,000.00 delivery costs produces $350,000.00 gross profit and 70% gross margin.
| Input | Example value |
|---|---|
| Revenue | $500,000.00 |
| Cost of goods or services sold | $150,000.00 |
| Gross margin | 70% |
What this calculation assumes
Consistent revenue and cost recognition. Costs may exceed revenue, producing a negative margin. With zero revenue the percentage is undefined while the absolute loss remains measurable.
What to consider next.
Use a consistent gross margin in LTV and CAC payback. Separate variable costs from fixed delivery costs when calculating contribution.
How we approach financial models →