COGS (Cost of Goods Sold)
The direct costs of delivering your product to customers. For SaaS, COGS typically includes hosting, third-party software, customer support, and payment processing fees.
What Is COGS in SaaS?
COGS (Cost of Goods Sold) represents the direct costs of delivering your software product to customers. In SaaS, this typically includes hosting and infrastructure (AWS, GCP, Azure), third-party software and API costs, customer support and success team costs, payment processing fees, and DevOps/site reliability costs directly tied to service delivery.
How to Calculate SaaS COGS
COGS = Hosting + Third-Party Software + Support + Payment Processing + DevOps
Exclude sales, marketing, R&D, and general administrative costs — those are operating expenses (OpEx), not COGS. The distinction matters because gross margin (Revenue - COGS) is the first profitability metric investors examine.
SaaS COGS Benchmarks
Healthy SaaS companies target COGS at 15-30% of revenue, resulting in 70-85% gross margins. If your COGS exceeds 30%, look for hosting optimization opportunities, renegotiate third-party contracts, or examine whether your support model is efficient. Professional services revenue typically has much higher COGS (50-80%) and should be reported separately.
