COGS (Cost of Goods Sold, SaaS)

COGS (Cost of Goods Sold) in a SaaS context refers to the direct costs required to deliver and support the product, including cloud infrastructure, third-party API fees, payment processing costs, customer success headcount, and data costs. Gross margin is revenue minus COGS.

How it works

SaaS COGS is primarily composed of hosting costs (compute, storage, bandwidth), third-party software fees embedded in the product, and customer-facing support and success personnel. Unlike traditional software, SaaS COGS scales with customer count and usage, making gross margin management an ongoing operational discipline.

Key facts

• Target gross margin: Best-in-class SaaS companies target 70-80% gross margin; below 60% suggests structural COGS challenges
• Infrastructure efficiency: As revenue scales, COGS as a percentage of revenue should decrease due to infrastructure amortization
• Support COGS: High support ticket volume per customer signals product complexity or onboarding gaps, inflating COGS

For builders

Gross margin quality determines how much capital is available for R&D and go-to-market investment. AI-native SaaS products face elevated COGS from inference costs, requiring careful model efficiency work to avoid margin compression as scale increases.

Sources

• Bessemer Venture Partners. State of the Cloud annual report. bvp.com
• SaaStr. SaaS benchmarks and metrics archive. saastr.com
• Bain & Company. The Net Promoter System. bain.com
• KPMG. Private SaaS Company Survey. kpmg.com
• ChartMogul. SaaS metrics benchmarks and definitions. chartmogul.com