🎙️ Hey there, SaaSpreneurs!🎙️

It's Ben Murray here from SaaS Metrics School, back with another eye-opening edition just for you! If you're like most SaaS business leaders, you've probably grappled with the perplexing task of figuring out what to include in your Cost of Goods Sold (COGS).

Trust me, you're not alone! This is one of my top coaching sessions.

Don’t forget to register for my free SaaS KPI training on Jan 10th. Save your seat here. And I just released a 240+ SaaS KPI and terms dictionary. Grab it here.

You can also listen to this episode here.

📓Key Concepts to Learn💡

1. Understanding Pure Play SaaS COGS Departments:

   • Tech Support:

     Support handles inbound requests for bug fixes and how-to questions. Integral for customer satisfaction and operational efficiency. If customers can't get help, retention suffers.

   • Professional Services:

     Includes setup, configuration, onboarding, and training of your customers on your product. Essential for getting customers started and ensuring they use the product effectively. And stay with you!

   • Customer Success (CS):

     When CS doesn’t sell, its primary role is to ensure the customer is getting the most out of the product (product adoption), directly impacting satisfaction and renewal rates. If CS sells expansion deals, they belong in OpEx.

   • DevOps:

     This department ensures the software’s infrastructure is running smoothly, making it indispensable for delivering the SaaS product seamlessly. Includes your hosting costs, security costs, and people.

2. Differentiating COGS vs. OPEX:

   • Understand the clear distinction between OPEX and COGS. Misclassifying can heavily skew your financial metrics like gross profit, affecting all SaaS metrics downstream.

   • OPEX Departments:

     Generally includes R&D, Sales, Marketing, and General and Administrative (G&A). These roles aren't directly involved in fulfilling revenue but are essential for growth and operations and scaling.

3. The Revenue Test for COGS Classification:

   • An essential technique to determine if a role should be classified under COGS—ask, if this role were eliminated, could you still deliver revenue? Is this role required to deliver revenue OR contractually obligated (access to a CS team, for example) to deliver revenue? If not, it’s likely a COGS role.

   • This test helps in ambiguous situations where titles and roles don't clearly fit standard COGS or OPEX definitions but are crucial for financial accuracy.

Ready to supercharge your SaaS business? Join Ben’s SaaS community with over 8,000 members for exclusive content. Don't miss out — maximize your SaaS knowledge today!

If you found this episode helpful, make sure to tune in to future episodes of SaaS Metric School to broaden your knowledge of essential SaaS metrics and finance topics.

Got any burning questions or specific metrics you'd like us to cover?

Drop us a line, and we'll do our best to address them in upcoming episodes.

Until next time, keep hustling and measuring those metrics!

Best regards,
Ben Murray
Host of SaaS Metric School

P.S. Don't forget to subscribe to our podcast and share it with your SaaS business buddies. Together, let's conquer the world of SaaS metrics!

Apple Podcasts
Spotify
YouTube