In a regulated SaaS environment, maintaining strong gross margins requires more than cost control — it requires financial precision, automation, and compliance strategy.
Understanding Gross Margin for SaaS
Gross margin shows how efficiently your company delivers value after covering the costs to operate your service:
Gross margin (%) = [(Revenue – Cost of Goods Sold) / Revenue] * 100
Typical SaaS gross margins range between 70–85%, but regulated SaaS firms may fall closer to 60–75% due to compliance, infrastructure, and security costs.
Typically included within COGS (not OPEX):
- Hosting and infrastructure (AWS, Azure, GCP)
- Customer onboarding and success teams
- Data backups and monitoring tools
- SOC-personnel costs (Cybersecurity-specific)
The Compliance Margin Challenge
Operating under HIPAA, SOC 2, FedRAMP, or PCI-DSS standards introduces:
- Higher cloud and security infrastructure costs
- Compliance audit fees and documentation overhead
- More specialized support and training
- Slower customer onboarding due to security reviews
Understanding these cost drivers helps you identify where margin pressure originates — and where to focus improvement.
Strategies to Improve Gross Margin
Optimize Cloud and Infrastructure
- Use auto-scaling and reserved instances to manage cost.
- Benchmark AWS, Azure, or GCP rates annually.
- Automate monitoring to prevent over-provisioning.
Streamline Support Operations
- Develop customer self-service portals.
- Automate onboarding steps using setup scripts or guided wizards.
- Track cost per support ticket to uncover inefficiencies.
Review Third Party Tool Spend
- Audit SaaS tool subscriptions quarterly.
- Consolidate security or analytics vendors where overlap exists.
- Negotiate multi-year agreements for predictable pricing.
Align Pricing with Value
- If compliance adds real value to customers, reflect it in your pricing.
Track and Benchmark Margins Periodically
Use SaaS metrics platforms like ChartMogul, Baremetrics, or Fathom to track:
- Monthly gross margin %
- COGS per customer
- Hosting cost per active user
- Gross margin by vertical or customer size
Benchmark these metrics against peers in similar regulatory environments to ensure your performance aligns with best-in-class operators.
The Long Term View
Gross margin improvement is ongoing.
As your business scales, continuously:
- Re-evaluate infrastructure and compliance costs
- Adjust pricing models for new features or markets
- Invest in automation and data-driven decision-making
Improving gross margins in regulated SaaS businesses comes down to clarity, automation, and alignment.
When you understand your true cost structure, automate compliance tasks, and align pricing with customer value, profitability becomes sustainable — even in complex, regulated industries.
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About Herod CPA PLLC
Herod CPA PLLC helps SaaS founders and operators review their overall cost structure in managing their key metrics.
Do you need to do a deep dive into your margin costs? We can help.
Contact us at info@herod.cpa or follow us on LinkedIn for more information.