Cost of Goods Sold (COGS)

What is Cost of Goods Sold (COGS)?

Cost of Goods Sold (COGS) in SaaS includes the direct costs associated with delivering the software service to customers. This typically covers hosting fees, third-party software licenses, and the salaries of DevOps or support personnel directly involved in service delivery.

Why It Matters

• It is the primary factor in determining gross margin, which reflects the underlying scalability of the business.

• Keeping COGS low relative to revenue is essential for achieving high profitability as the company scales.

• It helps management understand the true cost of supporting each additional customer.