WELCOME TO ISSUE NO #051

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📆 Today’s Rundown

Hey 👋, hope you had a great week! I bet you missed me, but I was so busy cooking something that you’re going to love. Stay tuned for more info! 👀

In the last issue, we discussed why tracking Days Payable Outstanding (DPO) matters, and now we are moving with the next topic from Cash Flow & Expenses content.

Let’s talk about ⬇️

Gross Margin

Yes, I know it’s not flashy like revenue growth—but hear me out:

Your gross margin isn't just a number on your income statement. It's a powerful metric telling you exactly how much cash you're actually keeping from every dollar you make.

But most SaaS founders overlook it or—even worse—measure it incorrectly.

Today, let’s get crystal clear on:

TL;DR

⚡️ What exactly is Gross Margin?

🧮 Quick Gross Margin formula (with SaaS example)

📌 Why Gross Margin matters (especially in SaaS)?

🚧 The BIG mistake SaaS companies make with Gross Margin

🎯 How to leverage Gross Margin for growth?

Let's dive in 👇

⚡️ What exactly is Gross Margin?

Gross margin (aka gross profit ratio) measures how much money you keep after subtracting the direct costs involved in delivering your SaaS product.

Simply put:

• A 75% gross margin means you keep $0.75 out of every $1 in revenue.

• The remaining $0.25? Those are your direct costs.

In SaaS, direct costs (COGS) typically include:

• Cloud infrastructure (AWS, Azure, etc.)

• Merchant processing fees (Stripe, PayPal)

• Customer support salaries

• Software licenses tied directly to delivery

• Engineering salaries for product development

Here's what's NOT included:
Marketing spend, sales commissions, office rent—those fall under operational expenses.

🧮 Quick Gross Margin formula (with SaaS example)

Here’s the simple math behind it:

Gross Margin (%) = (Revenue – COGS) ÷ Revenue × 100

Example:

• Revenue: $1,500,000

• COGS: $360,000

Gross Margin = ($1.5M – $360k) ÷ $1.5M × 100 = 76%

That means for every $1 your SaaS brings in, you're keeping 76 cents.
Pretty solid.

Need clarity on your financial strategy or cash flow optimization?

I'm Aleksandar, fractional CFO at Fiscallion, where we help founders like you achieve financial clarity, streamline reporting, and build investor-ready forecasts.

Ready to level up your finances?

📌 Why Gross Margin matters (especially in SaaS)?

High gross margins show investors, VCs, and analysts that your SaaS is scalable and financially healthy.

Here’s what they’re looking for:

• Below 70%: 🚩 Investors get nervous.

• Around 75%: ✅ Good benchmark for most SaaS companies.

• 80–90%+: 🔥 You're in best-in-class territory.

For context, the median SaaS gross margin is about 73%, but industry leaders regularly hit 80–90%.

Compare that with restaurants (~27%) or automotive (~9%), and you'll quickly see why SaaS companies are so attractive to investors.

🚧 The BIG mistake SaaS companies make with Gross Margin

Most errors happen because founders aren't clear on what counts as COGS.

For example:

• Customer support team exclusively supporting existing customers → Include in COGS.

• Customer support team doing sales or marketing → Operational expenses.

Misclassifying these expenses skews your gross margin—and leads to bad strategic decisions or even investor mistrust.

Solution?

• Clearly define COGS internally.

• Automate calculations with financial analytics tools to avoid spreadsheet errors.

🎯 How to leverage Gross Margin for growth?

Your gross margin isn't just a percentage—it’s a roadmap for growth.

• High gross margin (75%+): Signals you can confidently reinvest in scaling, product improvements, and marketing.

• Lower gross margin: Indicates potential issues with pricing, cost management, or operational efficiency.

Use your gross margin data to tell your company’s story clearly:

✅ “Here’s how efficiently we operate...”
✅ “Here’s exactly where we’ve improved...”
✅ “Here’s why investing in our SaaS is a great bet...”

This metric empowers you with the confidence to make growth decisions backed by data—not guesswork.

I hope that clears things up and gives you actionable insights to level-up your SaaS financial strategy.

Got more questions on gross margin—or another SaaS finance topic? Just hit reply!

I'm here to help :)

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