Understanding growth benchmarks, both how they are calculated and why they are important indicators of your company’s success, is important for long-term growth. Companies that are successful and grow faster than their peers often have an easier time raising capital, hiring, and getting press. Below, we define gross margin and explain its importance as well as share the rates that you need to be at to be in the top quartile of same-stage SaaS companies.
Gross Margin Defined
Before analyzing gross margin and how your company’s gross margin compares to that of other similar-stage SaaS companies, it is important to understand how gross margin is calculated:
Gross Margin shows you how much cash you have available for operating expenses and new investments. It’s a reliable indicator of scalability, and is commonly referred to by investors when evaluating a SaaS company.
SaaS gross margins are usually much higher than those of other companies, and it’s one of the features of SaaS businesses - alongside recurring revenues - that make them so valuable.
Comparing Gross Margin by Company Stage
If you are looking to benchmark your company’s gross margin against other SaaS companies, there are a few important trends to understand:
- Companies in the top quartile of their peer-group consistently achieve Gross Margins of >80%
- As SaaS companies grow, many start selling implementation services alongside their products. Since this requires more human resources, these services have lower margins compared to pure SaaS. As a result, there’s a slight dip in the total Gross Margin around the $10-15m mark
About Our Data & SaaS Company Benchmark Report
Whether you’re planning to raise funding or preparing your worst-case scenario, it’s more important than ever to have a razor-sharp understanding of what good performance looks like and which metrics are the markers of a healthy SaaS business. You can view the entire benchmark report, including which companies we analyzed, here.
For this report, we analyzed 439 private SaaS companies with $1 - 15m Annual Recurring Revenue. The data reflects actual financial performance, sourced directly from companies’ own records. We believe it is the largest dataset of its kind that is based on financial actuals, rather than survey data.
We then compared the performance of these private companies against 43 SaaS businesses that went public in 2020 and 2021. Data on public SaaS performance was sourced from their S-1 filings.
Or, for more analyses of important SaaS benchmarks, see our findings on: