While COGS and cost of revenue may be slightly interchangeable, the formulas are not. SaaS companies, meanwhile, include customer support costs to their cost of revenue since customer support is essential and directly related to providing and maintaining the product or service. Customer support doesn’t impact COGS, which is why these companies categorize it as an operating expense. For example, companies with a physical product need to account for raw material, labor, and production costs. ![]() In other industries, like ecommerce, the costs incurred to obtain a sale are necessary for producing the product. To take this distinction a step further, your cost of revenue includes all the costs the company incurs to obtain a sale (which includes any fixed costs or variable costs) and the cost of goods sold. While cost of revenue and COGS can be interchangeable for SaaS companies, most companies will opt to use the phrase “cost of revenue” over COGS.Ĭost of revenue includes the COGS plus distribution and marketing costs. Any time the sales team spends on updating contracts also falls under SaaS COGS. Customer success managers loop the sales team into any upsell and cross-sell agreements, as well as help optimize services according to the customers’ growing needs as the relationship grows. The customer success team, for example, supports retention and expansion efforts. Including indirect costs in COGS helps ensure that you have a fully-burdened, accurate cost of revenue.
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