Definition
Gross margin is the share of revenue left after the direct costs of delivering the product. For software, those costs include hosting, third-party services, payment fees and often customer support.
Formula
Gross margin = (revenue − cost of goods sold) ÷ revenue × 100.
Example
$100,000 of revenue with $20,000 of hosting, services and support costs gives a gross margin of 80%.
Why it matters
Gross margin sets how much of each sale is available for growth and profit, and it belongs in lifetime value: margin-based CLV is what you can compare with acquisition cost.