PricingNest

SaaS Gross Margin Targets (How to Choose a Range)

A practical way to pick a gross margin target and avoid common modeling mistakes.

Quick checklist

  • Use a target range, not a single number.
  • Segment margin targets by product line and customer size.
  • Include third-party pass-through costs in COGS.
  • Validate margin targets against competitors.
  • Refresh targets quarterly.

Step-by-step

  1. Calculate blended unit cost from infra and vendor costs.
  2. Add fixed overhead to understand all-in cost.
  3. Choose a target gross margin range (for example 70-90%).
  4. Validate against competitive pricing and value delivered.
  5. Adjust pricing tiers to keep p90 usage within the target range.

Example targets

  • Self-serve SaaS: 75-85% gross margin.
  • API products: 70-85% depending on pass-through costs.
  • Infra-heavy products: 60-75% when costs are high.

Common mistakes

  • Picking a target without cost data.
  • Using a single margin target across very different products.
  • Ignoring how gross margin changes at high usage.

Tools to use