The gross margin, or Gross Margin, is one of the most fundamental indicators to assess the economic viability of a business. Too often relegated to the background behind growth or cash flow, it nevertheless constitutes the structural base any future profitability. For investors, it makes it possible to judge whether the company has a real economic lever … or if it is condemned to grow without ever generating margin.
What does the gross margin measure?
Gross margin (%) = (turnover – sales cost) / turnover × 100
THE sales cost (Cogs, Cost of Goods Sold) Includes all costs directly linked to the production or delivery of the product or service: cloud accommodation, customer support, packaging costs, commissions paid, technical infrastructure, etc.
The raw margin exclude ::
- Trade and marketing costs
- Administrative wages
- R&D expenses (except production)
Why the gross margin is a strategic indicator for investors
1. Future profitability structure
A high gross margin means that the company has the structural capacity to identify a strong operating margin once the fixed costs have been absorbed.
2. Reinvestment capacity
The more important the gross margin, the more resources can allocate resources to customer acquisition, innovation or expansion.
3. Signal on pricing and efficiency
A degraded gross margin may indicate too low pricing, ineffective service delivery or excessive infrastructure cost.
4. Valorization factor
The multiple valuation (on arrival or income) are always higher for companies with high gross margin. This is a discriminating criterion between the capital-effect models and those dependent on the volume.
Sectoral benchmarks
| Sector / Model | Target gross margin (%) |
|---|---|
| SaaS B2B | 75 – 90 % |
| Marketplaces | 30 – 50 % (after commissions) |
| E-commerce | 25 – 40 % |
| Digital services | 60 – 80 % |
| Cloud infrastructure | 60 – 70 % |
In SaaS, a gross margin <70 % is considered to be worrying, except in Early-Stage with strategic arbitration.
How to improve the gross margin
- Optimize direct costs
– Reduction of servers, renegotiation of suppliers
– Delivery automation, reduction of manual support - Work pricing
– Adjustment of pricing grids according to the perceived value
– Creation of higher margin options (advanced features, premium support) - Segment the offers
– Differentiating costs according to customer profiles
– Delete expensive and little used features or services - Follow the real unit cost
– Calculate the COGS by active user Or by product deliveredand follow its evolution over time
Sectoral limits and variations
- The gross margin varies strongly according to the models (SaaS vs. Services vs. e-commerce) and should not be interpreted in isolation.
- Certain costs are difficult to attribute (e.g. shared customer support, shared platform cost).
- Low raw margins can be acceptable if the recurrence is strong and the Churn very low (“Utility” effect).
MB is the economic framework of the company
The gross margin is not a simple accounting indicator, it determines the ability to grow without burning cash, finance innovation, and to resist market shocks. For investors, it conditions the future profitability of the model and its valuation potential.
See you tomorrow with the keyword we hear on a daily basis, EBITDA, but is it adapted to tech?
