Gross Profit Margins for SaaS businesses

What is considered good profit margins for a SaaS company, and I guess more “Custom AI SaaS” that I assume most of us are trying to start.

Right now my profit margin is like 30%, I think maybe that’s a little too low for how I’ve priced things. Reading up on it I found a lot of more mature SaaS businesses are around 70-80%, my company has been around for a month so I figure 30% isn’t too bad?

People who have been around longer in SaaS , what are your thoughts around what a SaaS typically has to have for gross margin to be truly attractive to investors?

All depends what you are aiming for, typical margins for an OEM are around 200% retail as you need to include margins for your distributers, if you are selling direct to an end user then sure, 100% markup, or whatever the market will stand. Might start off at 100% and end up being 5% if you have no USP’s or differentiators.

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What do you mean? How would we end up at 5% without USP’s? not getting the logic there

I would shoot for 70-80% profit margin. By profit I mean revenue - expenses, and in expenses, I am not including things like salaries. So this is raw product profit.

A 30% margin is like what McDonalds makes, it’s pretty low.

So you’re saying 70-80% gross profit margin? You kind of worded that confusing when I think we were already on the same page.

Profit margin is how much you’re taking in versus your expenses so it implies its gross

Sure an example to clarify is, say you get $100 revenue. Then your profit should be $70-$80. So it costs you $20-$30 to generate that $100 in revenue.

Right so really what needs to be done is I need to limit my freemium basically.

Right now my subs are basically using a million tokens a month and my freemium is using 6 million.

We’re still profiting but only at 30% and I’m worried thats just not an attractive number for an investor.

We do indeed have USP’s but I want to destroy the competition entirely by being a better software and better priced. But the freemium clearly has to be limited to like one conversation per account or something. But at the same time. Based on what I’m seeing - most people who don’t use the chat bot or convert and are just trying it out, only HAVE one conversation.

The solution is still not so clear to me. Because if that 6 million tokenage itself is just driven by the app getting attention and most people having one conversation, then my freemium model no matter what causes bleed.

I’m no VC expert, but many software companies also have “loss leaders” that burn money in the short term, to gain popularity and market share, in hopes of becoming a sustainable product later on.

So if that’s your angle, you could run negative margin, assuming you have the cash to burn.

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yeah! thats basically like what we’re doing. I figure we gotta give a little to get a little.

Establish dominance in the market by being better and cheaper.

Where can I learn more about this stuff? Do you have any resources or you’ve just picked stuff up over the years?

Nothing to point to in particular. Just been a business owner for many years. Look into “venture capital”, watch Shark Tank, I dunno :rofl:


If there are 10 retailers selling eggs and the eggs are all the same, then customers will tend to buy from the cheapest seller, assuming supply is not restricted the price will tend to drop to the lowest someone is prepared to sell for, regardless of your indented profit margins at the start.

If you are selling “special” eggs with double yokes or they have magical properties then you have a unique selling point and you can charge more.