SaaS gross margin is calculated as (revenue minus cost of goods sold) divided by revenue. It reflects how efficiently a SaaS company delivers its product. Top SaaS companies typically achieve gross margins of 70-85%.

Example: A SaaS company generates $1,000,000 in annual revenue with $150,000 in hosting, support, and infrastructure costs. The gross margin is 85%, meaning $0.85 of every dollar of revenue is available to cover operating expenses and profit.