![]() What is the difference between COGS and operating costs?ĬOGS reflect how much you spend on building and supporting the software services that your customers purchase. Some equate operating expenses (OPEX) with cost of goods sold (COGS), which is inaccurate and could have negative consequences, such as reducing your share price. Many SaaS companies over-report their COGS because they are unsure what they should include in their cost of goods sold reports. ![]() COGS for SaaS differs from traditional software companies that create a physical software copy and distribute it. These services are software-enabled and distributed over the internet, which makes them unique. COGS are also referred to as cost of sales. With that in mind, I’d like to share some of my recommendations for discussing cost with your leadership team - and hope it might help you have stronger cost conversations.Ĭost of goods sold (COGS) in a software-as-a-service (SaaS) company refers to the direct costs you incur in building and running subscription-based software services. In my experience, positive discussions about cost tradeoffs can help your team make better decisions about everything from roadmap prioritization to pricing models. If you frame things well, though, you can have more productive conversations that lead to greater alignment between engineering and the rest of the business. However, it can be challenging to translate complex engineering concepts to business leaders. So it’s no surprise that many of us are increasingly responsible for answering questions and reporting about costs to our executive teams - and in some cases, the board. When you lead engineering for a company running on AWS, every technical decision you make can have an impact on your profit margin.
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