How do I calculate contribution margin for my SaaS startup?
Same question, your business
Quick answer
Take your revenue per customer and subtract the variable costs of serving that customer — hosting, support, payment fees, and any third-party tools tied to usage. What's left is your . In SaaS it's usually high, which is the whole appeal.
How to calculate it
Contribution margin = revenue per customer − variable cost to serve that customer. For SaaS, the variable costs are the ones that rise with each customer: cloud/hosting for their usage, customer support cost, payment-gateway fees, and any usage-based third-party services (email, SMS, APIs). Your product development cost is not variable — it's a fixed cost you spread across all customers, so it doesn't go into contribution margin.
An example
A customer pays ₹2,000/month. Serving them costs ₹150 in hosting, ₹100 in support, and ₹50 in payment fees — ₹300 total variable cost. Contribution margin = ₹2,000 − ₹300 = ₹1,700, or 85%. That high margin is why SaaS scales so well: once you cover fixed costs, most of each new rupee drops through.
Our honest take
SaaS margins look great on paper — just don't hide big usage-based costs (like heavy cloud or AI compute) by calling them “fixed.” If a cost grows with each customer, it belongs in your contribution margin.