MARGIN: services is included in your services gross margin.
TYPICAL EXPENSES: wages, payroll taxes, benefits, billable travel, travel, training, internal software subscriptions, PSA software, etc.WHAT THEY DO: implement and configure software and train customer on its use.Backlog is contracted services revenue that has not been delivered and invoiced. Key metrics for a PS team include billable utilization and backlog.
If you sell into mid-market and enterprise customers, you are likely very familiar with the services concept (often called PS or Pro Serv). If you have a lower price point, self-service product, you might not have a services team. However, not every SaaS company has a services department. If your software requires any configuration, implementation, and training, then you most likely have a services department. Service departments are critical to the initial success of your customer.
I review all expenses by department with each close cycle to catch errant entries. Therefore, it’s important to be diligent on the monthly coding of expenses. The department leader must manage and be accountable for all expenses under their control. For example, wages, taxes, benefits, travel, training, internal use software (ticket tracking, for example), pizza parties, and so on. Fully burdened means all expenses that arise from that department should be coded back to that department. When I post expenses to a department such as technical support, the cost center should be fully burdened. Transaction revenue may include usage, consumption, etc. However, with the ever-changing pricing and business models of SaaS, your COGS may also include hardware and transactions.
What Expenses are Included in SaaS COGSįor pure play SaaS, your COGS structure should include technical support, professional services, customer success, and dev ops.
In this post, I’ll explain how to structure your cost of goods sold for SaaS, what’s included in COGS, and benchmarks for SaaS gross margins.īonus! Join me on October 13 at 10:30am MT for a free, live class on COGS vs OpEx! Register here. Finally, without a correct SaaS P&L, we cannot easily or accurately calculate SaaS metrics. Third, without correct expense coding between COGS and OpEx, we cannot create the proper SaaS P&L. Second, we must understand our gross margins by revenue stream. First, we must understand our true, overall SaaS gross margin. The proper coding of SaaS COGS versus operating expenses (OpEx) is important for many reasons. It’s also an important question and something that you need to get right. What should I include in SaaS cost of goods sold (COGS)? This is a very common question from SaaS founders and finance teams.