Gross Margin

Gross margin measures the share of revenue that remains after deducting the direct costs tied to producing goods or delivering services. It shows how much a company retains to cover operating expenses and generate profit.

Calculate gross margin by subtracting cost of goods sold from total revenue, dividing the result by revenue, and multiplying by 100 to get a percentage. Companies use gross margin to assess product profitability, set pricing, and prioritize opportunities, and HubSpot Sales Hub provides reporting and deal-level insights to help teams track and compare margins across customers and products.

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What Is a Gross Margin and How Does It Differ From Net Margin for a SaaS Subscription Business?

Gross margin measures the portion of subscription revenue that remains after you cover the direct costs of delivering the service, such as hosting, third-party integrations, and payment processing fees. It is expressed as a percentage to help compare profitability across plans or customer segments.

A simple example: if a monthly subscription brings in $100 and the direct cost to serve that customer is $20, the gross margin is 80%. HubSpot Sales Hub reporting and deal analytics can help you track subscription revenue and COGS at the customer or product level to see where margins vary.

Net margin differs because it deducts all operating expenses, taxes, and interest in addition to COGS, so it shows the company’s bottom-line profitability. For many SaaS businesses, high gross margins reflect low incremental delivery costs, while net margin reveals the full impact of sales, marketing, and development expenses.

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How Does Gross Margin Affect Customer Acquisition Cost and Pricing Strategy for a B2B Company?

Gross margin determines how much revenue remains after direct costs, and that balance guides how much you can spend to acquire customers.

If margin is high, you can tolerate a higher customer acquisition cost to win larger contracts or support longer sales cycles. If margin is low, you need to keep acquisition costs tight or consider raising prices to protect profitability.

To make pricing and acquisition choices measurable, track product-level margins alongside acquisition spend so you can see which segments support premium pricing or require efficiency improvements. HubSpot Sales Hub reporting and HubSpot CRM revenue analytics can help link deal-level margins to acquisition channels and customer cohorts.

What Are the Common Accounting Treatments and Exclusions That Can Skew a SaaS Company's Gross Margin?

Accounting choices can materially change reported gross margin for a SaaS business. Common treatments that skew margins include whether you expense or capitalize software development and implementation costs, how you classify hosting and third-party integration fees, and whether customer onboarding or support are recorded as cost of goods sold.

Other distortions arise from revenue recognition methods, one-time credits and refunds, promotional discounts, and reseller or channel costs. These items can make margins look stronger or weaker in a given period and make comparisons across product lines or peers unreliable without adjustments.

To diagnose anomalies, trace revenue and cost items to the deal level and compare classification rules across reporting periods. HubSpot Sales Hub reporting and HubSpot CRM revenue analytics can help you map specific cost buckets to deals and see how different accounting treatments change gross margin over time.

When Should a Business Prioritize Increasing Gross Margin Versus Growing Revenue, and What Are the Trade-Offs?

Choosing whether to emphasize higher gross margin or broader revenue expansion depends on a company's cash position, competitive landscape, and long-term objectives.

If margins are thin and cash is constrained, improving unit economics usually makes sense to protect profitability and fund sustainable operations. If you have access to capital and a large addressable market, accepting lower margins temporarily can be the right move to secure scale and market share.

Track outcomes at the deal and product level so choices are evidence based. HubSpot Sales Hub reporting can compare margins across offers, and HubSpot CRM revenue analytics can connect margin changes to customer cohorts and acquisition channels.

How Can HubSpot's Revenue Analytics and Product Catalog Features Help Track and Improve Gross Margin?

Revenue analytics and product catalog features make it easier to see which offers contribute most to profitability and which ones erode margins. This visibility helps you prioritize product changes and pricing updates where they matter most.

Use HubSpot CRM revenue analytics to break down revenue and COGS by product, customer, and cohort. Combine that with HubSpot Sales Hub product library and deal line items so costs and prices are recorded at the line-item level for accurate margin calculations.

Once you have product-level gross margin, run simple scenario reports to test price changes, altered cost allocations, or revised onboarding expenses. Regularly reviewing these results lets finance and product teams make evidence-based decisions about pricing, packaging, and investment priorities.

What Is a Finance Manager's Guide to Using Gross Margin Metrics to Inform Pricing and Discount Decisions?

Finance managers use gross margin metrics to set pricing guardrails and discount rules that protect profitability. They segment margins by product, customer type, and contract length to see where concessions are sustainable.

Start by defining a minimum acceptable gross margin per product or customer segment, then map discount tiers to that threshold. Use HubSpot Sales Hub deal reporting and HubSpot CRM revenue analytics to monitor margins at the deal and cohort level so pricing choices are supported by accurate data.

Pilot limited discounts to measure changes in deal size, churn, and lifetime value before applying them broadly. Require margin-override approvals for exceptions and maintain dashboards that flag offers below threshold so finance and sales can respond promptly.

Key Takeaways: Gross Margin

HubSpot CRM revenue analytics and HubSpot Sales Hub product library make it possible to calculate and report product-level gross margin by combining deal line items, COGS fields, and pipeline analytics. HubSpot Marketing Hub lead tracking and attribution, together with HubSpot Sales Hub deal reporting, link acquisition spend to margin outcomes so you can measure acquisition efficiency and margin impact across campaigns. Use HubSpot Operations Hub data sync and HubSpot CRM custom reports to simulate pricing scenarios, enforce margin guardrails, and automate alerts when offers fall below thresholds.

Frequently Asked Questions About Gross Margin

How Do You Calculate Product-Level Gross Margin and Gross Margin Percentage for Subscription and Usage-Based Pricing?

Calculate product-level gross margin by subtracting product-specific cost of goods sold from the recognized revenue for the same period, then divide that result by recognized revenue to get the gross margin percentage. Use HubSpot Sales Hub product library and HubSpot CRM custom reports to aggregate recurring and usage revenue, map COGS fields to line items, and compute per-product margins. For subscription and usage-based models, prorate recurring charges, allocate usage fees to the billing period they were earned, and amortize one-time implementation costs over the contract term.

Which Common Accounting Treatments and Exclusions Can Skew a SaaS Company's Gross Margin, and How Should Finance Teams Adjust Reporting?

Capitalizing implementation costs, excluding reseller fees, misclassifying support or R&D as COGS, and inconsistent treatment of refunds or credits are common issues that skew gross margin. Finance teams should normalize reporting by restating COGS consistently, disclosing adjustments, and creating a reconciliation between statutory accounts and management metrics. Use HubSpot CRM custom reports and HubSpot Operations Hub data sync to pull consistent deal-line and cost data so you can apply the same exclusions and present adjusted margin metrics.

When Should A Business Prioritize Increasing Gross Margin Versus Growing Revenue, And What Are The Trade-Offs?

Early-stage businesses often prioritize revenue expansion to capture market share, while later-stage companies typically shift focus to improving gross margin to support sustainable profitability and capital returns. The trade-offs include accepting lower short-term profitability for faster customer acquisition or enforcing pricing discipline that may slow acquisition but improve per-customer economics. Use HubSpot CRM analytics and HubSpot Sales Hub pipeline management to model scenarios and HubSpot Marketing Hub attribution to understand how marketing spend affects both revenue and margin.

How Should B2B Companies Use Gross Margin to Set Customer Acquisition Cost Targets and Pricing Tiers?

Start by calculating allowable customer acquisition cost per cohort based on target gross margin and desired payback period, then segment customers by product, size, or channel to set differentiated CAC targets. Tie pricing tiers to margin targets by modeling volume discounts, service levels, and bundling so each tier meets minimum margin thresholds. Use HubSpot Marketing Hub attribution together with HubSpot CRM revenue analytics and HubSpot Sales Hub product library to link campaign spend, deal outcomes, and product-level margins for ongoing enforcement.

How Do You Determine A Target Gross Margin Percentage For Your Industry And Business Model?

Determine a target gross margin by benchmarking against similar companies in your industry, assessing your unit economics, and defining the operating margin you need to fund sales, marketing, and R&D. Adjust the target for your business model: SaaS with low variable costs will aim higher than mixed services or hardware models that carry material COGS. Use HubSpot CRM analytics and HubSpot Operations Hub data sync to analyze historical cohort performance and to simulate alternative pricing, cost, and retention scenarios when setting realistic targets.

Cost of Goods Sold

Understanding Cost of Goods Sold is essential for implementing gross margin effectively because it defines the direct costs that must be matched to revenue. Accurately allocating COGS by product and period enables finance teams to calculate per-product margins, inform pricing decisions, and report reliable unit economics.

Revenue Management

Revenue management directly impacts gross margin by determining when and how revenue is recognized across subscription and usage models. Implementing robust revenue schedules and billing rules reduces variability in margin measurement and supports more accurate forecasting and performance reviews.

Accrued Revenue

Accrued revenue affects the timing of recognized revenue and therefore alters gross margin in short-term period reporting. Reconciling accruals with billing systems and contract terms prevents margin distortion and gives executives clearer visibility into profitability by cohort.

Upselling

Upselling increases average contract value and can improve gross margin when incremental costs are low relative to additional revenue. Sales and customer success teams can use HubSpot Sales Hub pipeline management and product library to identify high-value upsell opportunities and measure their margin impact.

Sales Growth

Sales growth changes the scale at which fixed costs are absorbed and can improve or reduce gross margin depending on product mix and pricing. Scenario modeling with HubSpot CRM revenue analytics helps leaders understand how expansion strategies affect unit economics and inform investment decisions.

Sales Forecasting

Sales forecasting informs capacity planning and cost allocation, both of which influence gross margin outcomes. Integrating forecasts with HubSpot Sales Hub pipeline management and HubSpot CRM reporting helps finance teams set realistic margin targets and monitor variance.