If you’re a CFO of a SaaS business, one of your biggest challenges is gross margin. As we all know, gross margin is essentially the difference between the revenue for a subscription and the cost of fulfilling that subscription—and with the software industry’s seismic shift from an on-premises model to a SaaS model, we’ve watched gross margins go from about 99% to more like 70 to 80%. That’s a big change. Unlike the old on-premises model, the SaaS model now has operations, customer success, and other functions to include in the gross margin equation. A SaaS company needs to fulfill on the terms of subscriptions, and that entails both “assets” (e.g., computers, bandwidth, operations) and “services” (e.g., on-boarding, adoption, retention). The good news? […]
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