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A 100,000 period with 25,000 of delivery cost
Recognized revenue for the period is 100,000. Hosting is 8,000. Support for customers already paying is 12,000. Other cost of delivery is 5,000. Those amounts are an example so the arithmetic is easy to follow. Rule 5-03 names cost of services. It does not publish a hosting line or a target margin.
Recognized revenue: 25% lower
Change recognized revenue to 75,000 while keeping the other example values the same.
Recognized revenue: 25% higher
Change recognized revenue to 125,000 while keeping the other example values the same.
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Quick answer
What does the SaaS gross margin calculate?
What gross margin remains after hosting, support, and delivery cost? This calculator uses recognized revenue, hosting, support, and other cost of revenue to estimate revenue minus the cost of delivering the service immediately in your browser.
With the values currently entered, the result is 75% — of recognized revenue. It also shows gross profit, cost of revenue, hosting share, and support share.
How to use the SaaS gross margin
- Replace the example values with your own numbers.
- Review the result and supporting figures as they update automatically.
- Check the formula and assumptions before using the estimate for a decision.
Inputs used
- Recognized revenue
- Hosting
- Support
- Other cost of revenue
SaaS gross margin formula
Gross profit = revenue − hosting − support − other cost of revenue. Gross margin = that profit ÷ revenue.
Assumptions
- IRS Publication 334 figures gross profit as net receipts minus cost of goods sold, then compares that profit with net receipts. The receipt here is recognized revenue for the period. Hosting, support, and the other box are the cost of delivering the service. The amounts in the boxes are an example. The publication does not set a hosting budget or a target margin.
- SEC Regulation S-X Rule 5-03, 17 CFR 210.5-03, states revenues from services and the cost of services on their own lines, apart from other operating costs and from selling, general, and administrative expenses. A booking you have not recognized yet stays out of the revenue box. A sales commission stays out of the three cost boxes unless you have decided it is a cost of services.
Verify the inputs
Authoritative sources
These sources explain the definitions, factors, or rules behind this tool. Their geographic scope is shown because an official source for one country is not automatically valid somewhere else.
Chapter 7 figures gross profit as net receipts minus cost of goods sold. It then tests accuracy as that profit divided by net receipts, compared with the markup policy.
Statements of comprehensive incomeUS Securities and Exchange Commission — 17 CFR 210.5-03Scope: US public-company income statementsStates revenues from services and the cost of services on their own lines. Other operating costs, and selling, general, and administrative expenses, are separate captions.
Sources do not endorse Calculum. Check the source date, scope, and your own documents before making a financial, tax, insurance, or reporting decision.
Practical guide
SaaS gross margin example and edge cases
SaaS gross margin is recognized revenue minus hosting, support, and any other cost of delivering the service, divided by that revenue. IRS Publication 334 figures gross profit as net receipts minus the cost of goods sold. Regulation S-X Rule 5-03 states the cost of services apart from selling, general, and administrative expenses.
Example: A 100,000 period with 25,000 of delivery cost
Recognized revenue for the period is 100,000. Hosting is 8,000. Support for customers already paying is 12,000. Other cost of delivery is 5,000. Those amounts are an example so the arithmetic is easy to follow. Rule 5-03 names cost of services. It does not publish a hosting line or a target margin.
- Recognized revenue
- 100,000
- Hosting
- 8,000
- Support
- 12,000
- Other cost of revenue
- 5,000
Calculated result75%of recognized revenue
Cost of revenue is 25,000. Gross profit is 75,000, which is 75 percent of the 100,000. Hosting is 8 percent of revenue and support is 12 percent. The other 5,000 is 5 percent.
Example results use the default display profile. The calculator above follows your selected country and units.
How to read the result
- Read the 75 percent first. It is 75,000 divided by 100,000. The 75,000 is 100,000 minus 8,000, minus 12,000, minus 5,000.
- The revenue box is what you recognized in the same period as the costs. Publication 334 starts from net receipts, which are gross receipts minus returns and allowances. A contract you booked and have not earned yet stays out. Sales commissions stay out of the three cost boxes unless you have classed them as cost of services under Rule 5-03.
Edge cases worth checking
The revenue box holds bookings
A booking is an order. Recognized revenue is the part you earned in the period. Type that earned amount. If the 100,000 is bookings and you have recognized only half, the margin should use 50,000, and the same 25,000 of cost would be a 50 percent margin.
Support hours were spent selling
Rule 5-03 keeps selling expense under its own caption, apart from cost of services. Leave the selling share out of the 12,000. Hours spent keeping the service running for customers who already pay can stay. Mix the two and the 75 percent treats a sales cost as delivery.
What changes the result most
Recognized revenue
Use a current amount for recognized revenue. Include fees or recurring costs that belong in the same figure.
Hosting
Use a current amount for hosting. Include fees or recurring costs that belong in the same figure.
Support
Use a current amount for support. Include fees or recurring costs that belong in the same figure.
Try a different scenario
Small changes show whether the answer is stable or sensitive.
Recognized revenue: 25% lower
75,00066.7%of recognized revenue
Recognized revenue: 25% higher
125,00080%of recognized revenue
Hosting: 25% higher
10,00073%of recognized revenue
Common mistakes
Check recognized revenue
IRS Publication 334 figures gross profit as net receipts minus cost of goods sold, then compares that profit with net receipts. The receipt here is recognized revenue for the period. Hosting, support, and the other box are the cost of delivering the service. The amounts in the boxes are an example. The publication does not set a hosting budget or a target margin. Make sure this matches the number you enter.
Keep other cost of revenue consistent
SEC Regulation S-X Rule 5-03, 17 CFR 210.5-03, states revenues from services and the cost of services on their own lines, apart from other operating costs and from selling, general, and administrative expenses. A booking you have not recognized yet stays out of the revenue box. A sales commission stays out of the three cost boxes unless you have decided it is a cost of services. Use the same units and time period throughout the calculation.
Do not rely on one saas gross margin scenario
Run a cautious case and an optimistic case. The range is often more useful than one exact-looking number.
Use this result well
What gross margin remains after hosting, support, and delivery cost?
It does not replace a quote, contract, accountant, or local employment guidance.