What is your app's true gross margin?

Infrastructure, support hours, direct tooling, and Shopify's cut all come out before a dollar of profit exists. Six inputs and you get your real gross margin, your support cost per merchant, and what the number does at the ~4x profit anchor when a buyer looks.

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By Taylor Sicard · early Shopify, built the partner program · sold his own app (Uptime) to Tiny, a publicly traded company · has sat on both sides of app diligence

The thinking behind the number

Margin is what separates a software company from a job.

Ecosystem Strategy

What a $500K ARR app is worth

A worked example of how profit quality, not just profit, sets the price.

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Ecosystem Strategy

Platform dependency risk

The cost lines you don't control, and how buyers price exposure to them.

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Ecosystem Strategy

What app buyers actually want

The diligence list, including the cost structure questions founders forget to ask themselves.

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Method

How the gross margin is calculated

App COGS = infrastructure + support people-cost + other direct costs + Shopify's revenue share (0% on your first $1M of lifetime partner revenue, 15% above it). Gross margin = (MRR minus COGS) divided by MRR. The calculator also breaks support and infrastructure down per merchant, because support cost per merchant is the number that decides whether growth scales the software or just multiplies the headcount.

Gross margin 75%+The software is doing the work, this passes diligence.

60 to 75%Support or infra is eating the margin, buyers will model the fix and pay you less for it.

Under 60%This prices like an agency with a login page, not a software company.

Margin in hand, price the whole business in the app valuation calculator, check the platform's slice in the revenue-share calculator, and if underpricing is the real margin problem, model the fix in the pricing-model simulator. All of them live in the free Shopify app calculators suite.

Questions

Common questions

What is a good gross margin for a Shopify app?

The SaaS standard is 80%+ gross margin. Across the apps I've built, advised, and diligenced, 75%+ passes diligence for SMB-serving Shopify apps, 60 to 75% means support or infrastructure is eating the margin, and under 60% prices like an agency with a login page rather than a software company.

What counts as COGS for a Shopify app?

The direct cost of serving the merchants you already have: hosting and infrastructure, third-party API usage, support people-cost, Shopify's revenue share, and direct tooling like billing and monitoring. Marketing is not COGS, and neither is R&D: those are the costs of growing, not of serving.

Does Shopify's 15% revenue share count as COGS?

Yes, once you're past $1M of lifetime partner revenue, and buyers model it that way. The 15% comes off every dollar before your other costs, so an app past the threshold starts every month at an 85% ceiling before infra and support take their share.

How do I cut support cost without killing reviews?

Deflect with onboarding, docs, and in-app guidance, not with silence. Most support volume is the same ten questions asked before a merchant reaches value, so the scalable fix is upstream of the inbox. Reviews are the moat on this platform, so slower support is the one lever you don't pull.

How does gross margin change my app's valuation?

Smaller apps anchor around 4x trailing-12-month profit, so every point of gross margin you recover flows almost straight through to the multiple base. A buyer looking at a 55% margin app doesn't just see lower profit, they reprice the whole cost structure forward. The valuation calculator shows the full multiple math.

Should founders count their own hours in COGS?

Yes, at a loaded market rate, because a buyer will. If you personally answer support for twenty hours a week, the true margin includes the cost of replacing those hours. Pricing your own time at zero is the most common way app P&Ls flatter themselves.