Definition
Gross margin is the percentage of revenue remaining after cost of goods sold (COGS).
Why it matters
It sets the floor for discounts, the ceiling for acquisition spend, and the guardrails for pricing experiments.
Pricing implications
Price floors should protect target gross margin after discounts, refunds, and usage variability.
Measurement tips
Use blended costs, include support and infrastructure if they scale with usage, and track margin by segment.
Checklist
- Define what is included in COGS.
- Track gross margin by plan and segment.
- Model margin under p90 usage.
- Include discounts and credits in revenue.
- Review margin after vendor price changes.
- Align pricing tiers with cost tiers.
- Avoid discounts that break margin floors.
- Document margin targets and assumptions.