Is unit economics improving?
№ 226 · Gross margin trend
Definition
MetricGross margin
Unitpercent of revenue
Line of gross margin % over time. Watch for slow erosion from cost-of-revenue creep. Build by taking revenue minus cost of revenue (hosting, support, payment processing) divided by revenue per period. Example: 78% Q1, 76% Q2, 74% Q3 (drifting down 4 points in 9 months means investigate).
Benchmarks
| Bottom 30% | Median | Top 30% |
|---|---|---|
| below 25 percent across the market, below 65 percent for B2B SaaS | 34 percent across US listed nonfinancials, 71 to 77 percent for private B2B SaaS | above 70 percent for software, above 45 percent for branded consumer products, above 38 percent for general retail |
two populations: US listed nonfinancial companies as of January 2026 for the cross-market view, and private B2B SaaS for FY2024 for the software view · A single global gross margin number is close to meaningless across business models, which is why this card leads with the category table. Even inside B2B SaaS, definition moves the answer by six to eight points: Benchmarkit puts total revenue gross margin at 77 percent against 81 percent on subscription and 30 percent on professional services, while KeyBanc's survey has private SaaS total gross margin at 71 percent against about 79 percent on subscription. Almost all of that gap is services mix and where implementation and customer success cost is booked. AI-native software runs roughly 5 points below traditional SaaS because inference and compute sit in COGS. Damodaran's sector figures are aggregate ratios rather than medians, so the median company in each sector runs lower.
| Category | Bottom 30% | Median | Top 30% |
|---|---|---|---|
| B2B SaaS, subscription revenue only | below 70 percent | 79 to 81 percent | above 85 percent |
| B2B SaaS, total revenue including services | below 65 percent | 71 to 77 percent | above 82 percent |
| Professional services revenue inside a software business | below 20 percent | 30 percent | above 45 percent |
| AI-native software | below 50 percent | roughly 5 points below traditional SaaS peers, in the 50 to 65 percent range | above 70 percent |
| Apparel and branded consumer, US listed | below 45 percent | 56.9 percent | above 65 percent |
| Retail (general), US listed | below 27 percent | 33.2 percent | above 40 percent |
| Retail (grocery and food), US listed | below 22 percent | 26.3 percent | above 30 percent |
| Business and consumer services, US listed | below 25 percent | 33.4 percent | above 42 percent |
When it looks bad
The headline margin line holds flat while the services or low-margin category share of revenue climbs underneath it, so the blended number is being propped up by mix reporting rather than by delivery cost falling.
Blended gross margin steady at 72 percent across four quarters while services revenue rises from 12 to 21 percent of total and services margin falls from 34 to 18 percent.
What to do about it
- Publish subscription, services and blended gross margin as three separate lines. Benchmarkit's working rule is that once services exceed 15 to 20 percent of revenue or services margin drops below 30 percent the blended figure falls below the 77 percent median, and the blended line alone cannot tell you which of the two is happening.
- Move customer success time spent on troubleshooting and manual onboarding into COGS rather than sales and marketing. It depresses reported gross margin by two to five points, and it is the only way the CAC payback number and the margin number stop contradicting each other in the same board pack.
- For AI-heavy products, plot inference and compute cost per active account beneath the margin line. The 2025 High Alpha and Growth Unhinged readings put AI-native companies about 5 points below traditional SaaS on gross margin, and a per-account cost line is what tells you whether that gap is structural or is a caching and model-routing problem you can fix.
- In physical goods, break the margin into a landed cost bridge with freight, duty and markdown separated from unit cost. Damodaran's January 2026 data puts COGS at 43 percent of sales for apparel against 74 percent for grocery retail, so anywhere in that range the mix between categories is where margin is actually won or lost.
Sources
- NYU Stern (Aswath Damodaran) Reports gross margin of 34.39 percent for US listed companies excluding financials as of January 2026, with system and application software at 71.72 percent, internet software at 62.58 percent, apparel at 56.88 percent, business and consumer services at 33.38 percent, general retail at 33.18 percent and grocery and food retail at 26.31 percent, and COGS to sales of 43.12 percent for apparel against 73.69 percent for grocery retail. pages.stern.nyu.edu ↗
- Benchmarkit Reports median total revenue gross margin of 77 percent for private B2B SaaS, subscription revenue gross margin of 81 percent and professional services gross margin of 30 percent, with services at about 15 percent of total revenue at the median, and notes that once services exceed 15 to 20 percent of revenue or services margin falls below 30 percent, blended margin drops below the 77 percent median. benchmarkit.ai ↗
- HumanR Reports median total gross margin of 71 percent for private SaaS in the KeyBanc 2024 survey against a median subscription gross margin near 79 percent, and describes AI-native SaaS running roughly 50 to 60 percent gross margin because GPU compute and inference sit in COGS. humanr.ai ↗
- Sapphire Ventures and KeyBanc Capital Markets Reports gross retention around 90 percent and net retention around 101 percent across more than 100 private SaaS companies with median ARR of about $26M, alongside continued improvement in profitability metrics. sapphireventures.com ↗
- High Alpha Finds AI-native companies running about 5 points lower gross margin than traditional B2B SaaS peers, offset by roughly three times the growth rate, producing better Rule of 40 outcomes. highalpha.com ↗
- Growth Unhinged Reports AI-native companies growing three times faster with 5 points lower gross margins across all revenue bands, based on 800 companies in the 2025 dataset. growthunhinged.com ↗
- SaaS Capital Reports cost of goods sold as a share of ARR for private B2B SaaS, split by bootstrapped and equity-backed funding, with bootstrapped companies spending less across every category. saas-capital.com ↗
- NYU Stern (Aswath Damodaran) Reports sales to invested capital of 1.54 for system and application software against 4.65 for grocery and food retail, which is the asset-intensity counterpart to the margin difference. pages.stern.nyu.edu ↗