🎙️ Hey there, SaaSpreneurs!🎙️

👋 Welcome to the SaaS Metrics School Newsletter, where we dive deep into all things SaaS metrics and help you navigate the world of software-as-a-service businesses. We're excited to bring you the latest insights, tips, and best practices to optimize your SaaS metrics and boost your success in the industry.

🔍 In this week's episode titled "Your SaaS COGS Is Wrong," our host, Ben, sheds light on a common issue many SaaS companies face: incorrect cost of goods sold (COGS) calculations. Ben has reviewed 100’s of SaaS P&L’s and often finds inaccurate COGS numbers, which can greatly impact business management and growth.

🧮 Wondering what should be included in your SaaS COGS? Ben breaks it down into tech support, customer success, professional services, and DevOps. But it doesn't end there – revenue streams and pricing models can add complexity to the equation. Find out how to set up your COGS accurately to calculate your gross profit and improve efficiency over time.

You can also listen to the episode here.

📓Key Concepts to Learn💡

1. 📊 Exploring SaaS COGS in Depth: For pure-play SaaS businesses, COGS encompasses a comprehensive array of expenses, including those tethered to tech support, customer success (when direct sales aren't in play), professional services, and the DevOps department, which encompasses hosting, architectural considerations, and the critical customer-facing production instances. 🧑‍💻💼🛠️

2. 🚀 Impact on Revenue Streams: The configuration of COGS is far from one-size-fits-all; it metamorphoses in response to the unique contours of various revenue streams. Be it usage-based pricing, transaction-based models, or other financial frameworks, the incorporation of COGS necessitates the allocation of direct expenses tied to variable revenue streams into dedicated cost centers. This strategic maneuver enhances financial clarity and streamlines resource management. 💹🌊💼

3. 💰 The Pervading Significance of COGS: COGS is the compass guiding SaaS companies toward accurate gross profit determination. In the grand tapestry of SaaS metrics, this is the pivotal thread. SaaS co’s should continually strive to augment their gross profit margins, a testament to the evolving efficiency of their operations and, subsequently, their enduring viability. 📈💡📉

4. 📚 The Foundation: Crafting an unerring Chart of Accounts and judiciously implementing department coding within the accounting framework forms the bedrock of meticulous financial management. This approach safeguards against the peril of a "one-size-fits-all" mentality when dealing with expenses on the Profit and Loss statement. It's the blueprint for effective business governance. 📊🏢🧾

Grasping these foundational principles empowers SaaS companies to wield the tools necessary for precise COGS computation and management. This newfound insight fuels enhanced business performance and bolsters the path to sustained profitability. 📈🚀💼

Remember, having a deep understanding of your SaaS COGS is vital for making informed financial decisions and driving the success of your business. Keep these key concepts in mind to ensure your SaaS P&L is accurate, enabling you to effectively analyze and optimize your operations. 🎧📈🔍

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, Ben discusses the importance of accurately calculating cost of goods sold (COGS) for SaaS companies. He points out that many SaaS P&Ls have incorrect COGS and Opex classifications, making it difficult to manage the business effectively.

Ben explains that pure play SaaS COGS should include tech support, customer success (if they don't sell), professional services, and DevOps. He also highlights the need to consider revenue streams and associated direct expenses.

Accurate COGS calculation is crucial for determining gross profit and tracking SaaS metrics. It all starts with establishing the correct chart of accounts and department coding.