🎙️ Hey there, SaaSpreneurs!🎙️

We're back with another episode of SaaS Metrics School, and this time we're diving into the world of COGS (cost of goods sold) versus OpEx (operating expenses). 💼💰

In today's newsletter, we'll explore why this topic is crucial for your SaaS business and how getting it right can significantly impact your margins, metrics, and decision-making. 📈📊

Hosted by Ben Murray, who constantly delves into this subject during coaching sessions and his SaaS Metrics Foundation course, we'll uncover the importance of having a solid accounting foundation and the right chart of accounts and department structure to ace the COGS versus OpEx coding game.

💪Ben breaks down the definition of COGS in pure Play SaaS, including elements like tech support, professional services, customer onboarding, and customer success. 🤓 

Meanwhile, he highlights how OpEx typically includes R&D, sales, marketing, and G&A, shedding light on the significance of separating sales from marketing. 📚

📣Proper coding not only allows you to accurately calculate your overall gross margin but also helps you evaluate margins by revenue stream, paving the way for a deeper understanding of your investment profile within OpEx. 💸

That's not all! Ben emphasizes the importance of tracking OpEx spend as a percentage of revenue over time, ensuring your expectations align with the reality of your business. ⏳Don't miss out on this enlightening episode where we unravel the essence of COGS versus OpEx and its implications on managing your SaaS business. ✨

Tune in now, and remember, getting the coding right is the key to SaaS success! 🎧🔑

You can also listen to the episode here.

📓Key Concepts to Learn💡

1️⃣Understanding COGS: In the SaaS industry, COGS includes various aspects such as tech support, professional services (customer onboarding, training, and configuration), and more. Ben emphasizes the importance of coding customer success within COGS when this team focuses on product adoption. Moreover, he sheds light on DevOps, which is the production-facing, customer-facing environment within COGS.

2️⃣Identifying OpEx: While there are no absolutes in the world of SaaS, in most cases, your OpEx structure will encompass Research and Development (R&D), Sales, Marketing, and General and Administrative (G&A) expenses. Ben suggests separating sales from marketing for a more accurate view of your business operations.

3️⃣ Importance of Proper Coding: Accurately coding your expenses between COGS and OpEx is pivotal for several reasons. It allows you to calculate your overall gross margin correctly, which is crucial for understanding your business performance. Additionally, clear and distinct revenue and expense coding enables you to calculate margins by revenue stream, giving you valuable insights into the profitability of different aspects of your business. Lastly, with a proper OpEx profile, you can track and analyze your investment profile over time and see how it aligns with your expectations.

Mastering the concept of COGS vs OpEx is vital to ensure your SaaS business is on the right track. By getting the coding right and having a clear understanding of your financial metrics, you can make more informed decisions that ultimately drive growth and success.

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

📝 Episode Recap 🎧

In this episode of SaaS Metrics School, host Ben Murray dives into the importance of understanding the difference between Cost of Goods Sold (COGS) and Operating Expenses (OpEx) in a SaaS business. Ben emphasizes the critical nature of getting the coding of COGS vs OpEx correct, as it directly impacts the margins, downline metrics, and decision-making in a SaaS business. To achieve this, he suggests having a proper accounting foundation with the right chart of accounts and department structure.

He then breaks down the concept of COGS, particularly in pure-play SaaS, which includes tech support, professional services, customer success, and DevOps. Ben also mentions that the department structure within COGS can vary based on revenue streams.

Moving on to OpEx, Ben outlines the common structure below gross profit on a SaaS P&L, which is typically composed of Research and Development (R&D), Sales, Marketing, and General and Administrative (G&A) expenses. By separating these departments, it becomes easier to calculate accurate overall gross margin and analyze margins by revenue stream.

Moreover, the proper coding of COGS vs OpEx helps understand the investment profile within OpEx. By tracking the spend of each department as a percentage of revenue and monitoring its trend over time, businesses can effectively manage their OpEx investment and align it with expectations.

To recap, getting COGS vs OpEx coding correct is crucial for a SaaS business for several reasons: accurate gross profit calculation, margin analysis by revenue stream, and understanding the investment profile within OpEx.

By grasping these concepts, businesses can better manage their financial metrics and make informed decisions. Don't forget to tune in to the next episode of SaaS Metrics School.