Yet another article that loves to talk about how important gross margin in SaaS is, but tip toes around its definition.
Out of curiosity - how does this audience calculate what is included in the 'cost' / 'cogs' part of the equation?
My take - if the cost is required to maintain the continued ability for the customer to meaningfully use the SaaS application, then it's a COGS. This would mean the following should be typically COGS:
I was totally confused in that whole article about what they were talking about when they said Gross Margin.
How can professional services be included in Gross Margin?
What are they including in COGS?
Traditionally, any direct sales costs are included in COGS, but that doesn't seem to be the case here.
My take:
- Fully loaded infrastructure (as parent) including bandwidth costs
- The entire support department (management and office expenses included)
- Maintenance coding (if possible to split out from feature coding)
I'm assuming all revenue is subscription-based. I agree that any other revenue should be split out and calculated separately.
Again, I'd be really tempted to include at least some Sales and Marketing costs in there, too. If you couldn't get the sale without the advert, then technically the cost of the advert is a COGS item. But I get that this is debatable (half of your marketing spend is wasted, etc).
Out of curiosity - how does this audience calculate what is included in the 'cost' / 'cogs' part of the equation?
My take - if the cost is required to maintain the continued ability for the customer to meaningfully use the SaaS application, then it's a COGS. This would mean the following should be typically COGS:
- Fully loaded infrastructure costs (Hosting / Web Services / sys admin personnel)
- Support personnel (fully loaded personnel costs)
Also, GM for professional services and SaaS subscriptions should be maintained separately.
If you calculate GM for subscriptions appropriately, you can tell A LOT about profitability or potential for profitability of a SaaS company.