SaaS COGS vs. OpEx is a common discussion in my courses and with my clients.

What should I include in SaaS cost of goods sold (COGS)?

Quick guide below and why this is important. #saas
What departments are included in SaaS COGS?

For pure-play SaaS, your COGS structure should include:

1⃣Technical Support
2⃣Professional Services
3⃣Customer Success
4⃣Dev Ops

Of course, CS is up for debate depending on their role.

Dev Ops = Cost of Ops in my examples Image
📌Technical Support

They manage inbound customer contact regarding product bugs and how-to's.

💡Typical Expenses: Wages, payroll taxes, benefits, travel, training, internal software subscriptions
💡Margin: Included in recurring gross margin
📌Professional services

Implement and configure the software and train customers on its use.

💡Typical Expenses: Wages, payroll taxes, benefits, billable travel, travel, training, internal software subscriptions, PSA software
💡Margin: Included in your services gross margin
💡Customer Sucess

📌Help customers adopt your product and identify potential customer expansion.

💡Typical Expenses: wages, taxes, benefits, internal use software (i.e. GainSight), regional user groups, promotional swag, etc.
Margin: included in recurring gross margin
📌Dev Ops

Maintain hosting infrastructure (i.e., AWS, Azure), customer upgrades, and hosting service level agreements (SLAs).

💡Typical Expenses: hosting, R&D amortization, third-party software embedded in our products
💡Margin: included in recurring gross margin
Why is COGS vs. OpEx Important?

1) We must understand our overall gross margin and margins by revenue stream.
2) We must understand our OpEx profile. How much are we investing and how will that trend?
3) Many SaaS metrics require a GM % input. Image
To learn more and download my COGS cheatsheet, check out: thesaascfo.com/what-should-be…

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More from @TheSaaSCFO

Jan 31
Time for Advanced SaaS COGS. COGS vs OpEx is so important to get right.

But what if we have multiple revenue streams? Our COGS section must align with this.

Quick guide. #saas
What departments are included in pure-play SaaS COGS?

For pure-play SaaS, your COGS structure should include:

1⃣Technical Support
2⃣Professional Services
3⃣Customer Success
4⃣Dev Ops

Of course, CS is up for debate depending on their role.

Dev Ops = Cost of Ops in my example Image
What if we have more than just subscriptions and services?

It's very common in SaaS to have subscriptions, services, and variable revenue streams.

I had one client with all but managed services in the pic below. Image
Read 7 tweets
Jan 10
CFO’s will tell you that financial discipline never goes out of style. Good markets, bad markets. Doesn’t matter.

But with the tighter markets, everyone is calling for longer cash runways and attention to the Rule of 40 metric.

A quick post on the Rule of 40. #saas
What is the Rule of 40?

It's a financial framework that measures revenue growth vs profit margins. The Rule of 40 determines the health and/or attractiveness of your business. To CFO’s, it adds financial discipline to your decision-making process.
How to Calculate the Rule of 40

Rule of 40 = growth % + profit margin
If revenue growth is 15%
and profit margin is 20%
Your rule of 40 number is 35%
Can you have negative inputs? Yes, that’s the meaning of the Rule of 40.

Increase growth or profit to reach 40% or higher.
Read 9 tweets
Oct 28, 2022
I review a lot of SaaS P&L's. 90% are structured incorrectly or need improvement.

Quick thread on the 4 common mistakes in your SaaS P&L setup. With pictures :) #saas Image
The SaaS P&L Structure

A properly formatted SaaS P&L tells you so much! And it's easily consumable by operators and investors.

- gross profit
- margins by revenue stream
- OpEx profile
- EBITDA
- and it easily feeds S&M efficiency metrics

Cost of Ops = Dev Ops in this example Image
The Chart of Accounts

The COA is a numerical and descriptive listing of all the accounts on your general ledger from the balance sheet to the income statement.

This is "under the hood" of your P&L. You need enough rev and expense detail for proper coding, analysis, rollups. Image
Read 6 tweets

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