Cost of Goods Sold (COGS)

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What is the cost of goods sold?

Cost of Goods Sold (COGS) refers to the cost to deliver the “good.” For SaaS companies, these are items that a single customer will need once they purchase the software. They tend to be infrastructure and customer support costs, such as:

  • Site operations costs (hosting, fees, association personnel)
  • Support personnel
  • Software implementation costs
  • Training and onboarding costs

Items like customer acquisition, software development, and G&A are not included in COGS since they don’t change with the addition of a new customer.

For SaaS companies, COGS are in the range of 5% to 40%. Higher COGS are generally influenced by more complex software implementation or service costs.

EXAMPLE:

Your customer’s COGS include:

  • Hosting expenses: $8,750
  • Internal engineering support: $4,100
  • Customer support: $12,300
  • Third party and/or transaction fees: $3,500
  • Professional services: $32,000

Your monthly COGS is $60,650 ($8,750 + $4,100 + $12,300 + $3,500 + $32,000).  If your total monthly revenue is $200,000, then your percentage of COGS to revenue is 30% and your gross margin is 70%.


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