Profit margins can make or break a business. Strong profitability isn't just a sign of success—it’s a lifeline for growth, innovation, and long-term sustainability. But achieving and maintaining strong margins is only possible if you have a clear understanding of how to track profit margins accurately and know what influences them most.
For SaaS companies, paying attention to profit margins is particularly important. SaaS products, compared to physical products, tend to have high gross margins. Equally, however, many SaaS companies are guilty of overspending in other areas of their business in pursuit of growth, dragging down overall EBITDA margins.
The ability to improve your company’s profit margins starts with establishing robust financial tracking systems. To be able to manage profit, companies must first be able to measure it: including all of the drivers and drainers on their profit margins. Developing a data-driven approach to identify and optimize these factors is crucial for long-term success.
While every business has unique opportunities when it comes to boosting its margins, there are several margin-boosting strategies that we’ve seen work across many of the SaaS companies we work with. In this guide, we’ll share those strategies, highlighting several actionable steps that SaaS founders can take to start improving their profit margins in 2025 and beyond.
1. Dive Deep into Margins
You shouldn’t look at your company’s profit margin as just one number: instead, break your margin out by different product lines.
On the surface, your overall margin may seem healthy, but the true picture often lies in the details. Breaking down margins by product line can uncover underperforming segments that drag down profitability. You might find that while your overall margin is in line with expectations, certain products or services are operating at a loss. Equally, you might discover some services are far more margin accretive than others, and choose to double down in those areas.
By identifying underperforming and overperforming areas, companies can reevaluate their costs and adjust their strategies to ensure every revenue-generating part of their business contributes positively to the bottom line.
2. Pre-Pay Cloud Infrastructure Costs
Cloud hosting and infrastructure costs often represent a significant expense for SaaS companies. Services like AWS and Google Cloud are foundational to SaaS businesses because they provide scalable, reliable, and secure infrastructure critical for delivering software to users, but they often represent a huge line item on a company’s budget.
Many service providers offer significant discounts if your business pre-pays for future usage. Several SaaS companies we’ve advised forecast their cloud usage and pre-pay for hosting services, resulting in substantially lower rates and more predictability in their cash flow.
Beyond pre-paying for these costs, companies should also optimize their cloud usage. Implementing practices like rightsizing instances, leveraging auto-scaling, and avoiding idle resources can lead to further cost reductions. Monitoring and managing cloud spend with dedicated tools ensures that you’re only paying for what you need.
3. Prioritize High-Margin Revenue Streams
Not all revenue is created equal. For SaaS companies, subscription-based revenue streams often carry much higher margins than one-time services or custom projects. By focusing on growing high-margin revenue sources, such as software subscriptions, companies can stabilize their income and improve profitability.
To maximize these revenue streams, businesses can introduce tiered pricing models, upsell opportunities, and value-added features to incentivize customers to upgrade to higher subscription levels. Analyzing customer cohorts can identify which customer segments are most profitable, allowing companies to tailor marketing and product development efforts toward these audiences.
Evaluate your revenue streams and allocate resources to amplify those with the highest margins. Consider scaling back on offerings that consume significant resources but contribute little to profitability.
4. Focus on Service Margins, Not Just SaaS Margins
Streamlining operations is another powerful lever for improving margins. Look for inefficiencies in your processes and identify opportunities to reduce overhead. This is particularly true for SaaS businesses that have a service component to their business, such as teams of implementation consultants.
Service businesses tend to operate completely differently from the core software portion of your business. To ensure profitability, carefully track the utilization rates of your team. This is a delicate balance: you want your implementation team to constantly be staffed on projects, but equally, you need to ensure you have the bandwidth to respond to growth. Aim for gross margins of 40 - 50% in these business lines: they likely won’t be as profitable as your core software business, but they’re still important to your success.
5. Scale Customer Success Costs in Line with Revenue
For SaaS businesses that include a service component, balancing service delivery with recurring revenue is key to maintaining healthy margins. As your company grows, you’ll need greater levels of resources to deliver your services: more customer success team members, more salespeople, and so on.
Ideally, these costs should scale in line with your company’s revenue base. Make sure you understand how many customers a customer success manager can serve, and build out the infrastructure around them (such as supervisors and VPs of Customer Success) accordingly. This enables you to maintain relatively consistent margins as you scale. Over time, focus on improving these margins by adding self-service solutions and improving the efficiency of your customer success team.
6. Focus on Operating Expenses
Beyond gross margins, SaaS companies also have plenty of opportunities to boost their EBITDA margins by streamlining their operating expenses. We generally look at these opportunities to improve profit margins through three lenses:
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- Development Costs: early on in a SaaS business, your software development team is your most important asset, and not an area where you should skimp. As you grow, however, it’s important to develop this department more intentionally and focus on building features that truly drive value for your users, aligning your talent acquisition strategy with your product roadmap.
- Sales & Marketing: this is often the largest line item in a SaaS business’s P&L as the business matures. Once you pass a couple of million dollars in ARR, you should have a solid idea of what the formula for growth looks like. Closely monitor the efficiency of your sales team and consider moving on team members who consistently underperform their quota. Track a consistent series of financial metrics for your tech company, including net dollar retention, churn rate, customer acquisition cost, and more.
- General & Administrative Costs (G&A): as your SaaS business grows, so do the costs to run it. From the rent on your office space to the cost of professional services, it’s easy for costs to grow quickly as your business scales. Our advice: retain the scrappy, startup mentality that got you where you are today. You don’t need the nicest office in town or lavish holiday parties: you need a team of busy, fully-utilized people who are aligned on what your business needs to be successful.
Level Up Your Financial Performance with G-Squared Partners
Improving profit margins is an ongoing process that requires founders to take a more intentional, data-driven approach to measuring the performance of their business. By rolling up your sleeves and diving into the details of your financial performance, you’ll develop an understanding of what truly drives profitability in your business.
At G-Squared Partners, our outsourced CFOs and accountants routinely work with SaaS companies that need assistance improving their profit margins. Whether it’s a comprehensive turnaround strategy or a more targeted approach, our professionals have the skills and expertise to work closely with your company’s leaders on improving profitability, no matter what kind of situation you find yourself in.
Want to learn more about how we can help your SaaS business improve profit margins? Get in touch today. We’ll set up an initial consultation, take a look at your financials, and share actionable insights right off the bat that will help you move forward on a stronger financial footing.
