🎙️ Hey there, SaaSpreneurs!🎙️

🚀 Welcome to another exciting session of SaaS Metrics School! 📚 In this episode, our energetic host, Ben Murray, takes us on a journey deep into the heart of your SaaS business. 🔍 Today's focus? Tracking the ever-important Cost of Goods Sold (COGS) and diving into the dynamic world of usage-based revenue. 💸

But wait, there's more! 🌟 Ben doesn't just talk the talk; he walks us through practical examples, breathing life into these concepts. 🚶‍♂️💡 Discover the art of structuring the COGS arena for both Pure Play SaaS companies and those dancing with variable revenue streams.

You can also listen to this episode here.

📓Key Concepts to Learn💡

1. 🎯 Tracking COGS with Usage-Based Revenue: Understanding how to navigate the maze of Cost of Goods Sold (COGS) expenses in the realm of usage-based revenue is 🔑 crucial for steering your SaaS business effectively. Dive into the strategy of setting up the COGS area, accounting for diverse revenue streams – from usage processing to transaction consumption and third-party expenses. 🚀💼

2. 💡 Components of COGS for Pure Play SaaS: In the world of Pure Play SaaS, the COGS area is like a treasure chest of expenses. 💰 Think technical support, customer success (if they don’t sell!), and professional services such as setup, onboarding, and configuration training AND DevOps, including the product's architecture and hosting, all find their home here. 🛠️🌐

3. 🔄 Adding Cost Centers for Variable Revenue Streams: When your SaaS company offers variable revenue streams (think usage-based charges like messaging, for example), it's time to introduce another cost center to the COGS area - Variable Expenses. 📊 And keep a keen eye on expenses tied to third-party products embedded within your SaaS product – Twilio for messaging, for example. 📱🌐

4. 📈 Importance of Tracking Margins by Revenue Stream: Unlock the secrets of overall gross profit by keeping a watchful eye on COGS. Analyzing margins by revenue stream empowers businesses to spot the golden eggs among their revenue sources. Scale the COGS area strategically and forecast your business growth with confidence. With the setup above, you’ll be able to calculate margins by revenue stream.💼🚀

5. 🚀 Impact on SaaS Financial Management: Building the COGS area and revenue categories correctly lays the foundation for SaaS financial management. 🏗️ Without this solid base, effectively steering a SaaS business and making strategic growth decisions becomes as challenging as navigating a maze blindfolded. 🕵️‍♂️💡

These aren't just concepts; they're the keys to unlocking the hidden potential between COGS and usage-based revenue in the dynamic world of SaaS. Implementing these strategies can reshape your SaaS company's financial landscape and supercharge your overall business strategy. 🌐💰

📝 Episode Recap 🎧

In this episode of SaaS Metrics School, Ben discusses the importance of tracking Cost of Goods Sold (COGS) when a SaaS business has usage-based revenue. He emphasizes that tracking COGS correctly is crucial for managing a SaaS business, especially when there are multiple revenue streams that include variable revenue such as usage processing or transaction consumption.

For a Pure Play SaaS company, COGS typically includes technical support, customer success, professional services, and DevOps. However, when there are variable revenue streams, it may be necessary to add another cost center to track expenses associated with those revenue streams. Ben provides the example of an app using Twilio for messaging and charging based on usage. In this case, a variable cost center would be set up to track Twilio expenses.

Ben highlights the importance of understanding gross profit and margins by revenue stream to determine what is contributing to overall profitability and where to focus efforts. He stresses the need to differentiate between COGS and OpEx, calculating gross profit, and understanding margins by revenue stream for effective SaaS financial management.

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