COGS ACRONYM SOFTWARE
COGS ACRONYM PROFESSIONAL

The amount you spend just to operate your business should not be included in the calculation of product.

COGS ACRONYM SOFTWARE

Software entrepreneurs should avoid including OPEX and other indirect expenses such as: Beyond the expenses necessary to produce their software, not many company costs are considered COGS. Software companies will inherently have different COGS line items than a brick and mortar shop.

Personnel costs for the customer support team responsible for providing ongoing support to customers once they are live on the application.

This includes the employees assigned implementation, consulting, data migration, and training duties.

COGS ACRONYM PROFESSIONAL

Personnel costs for the professional services team responsible for getting a customer live on the product.Personnel costs for DevOps employees responsible for managing and running the servers and data center delivering the SaaS application to customers.This could be a third-party expense for a reporting software application used in the company’s product and delivered to the customer. Costs for a third-party software that is part of the product delivered to customers.Think cloud-based application subscriptions like Rackspace or AWS expenses. Hosting expenses to deliver the actual software.Common COGS expense line items for software companies are:

They directly reflect what you spend building and supporting the software your business develops, not the maintenance of your business itself (more on that later). Speaking broadly, your COGS structure will likely include technical support, professional services, customer success, and developmental operations. Expenses to Include in COGSĮxpenses to include in COGS are those directly attributable to the delivery of the goods sold by a company or the services provided. Modern software companies have limited expenses (not to mention fewer responsibilities!) due to the ability to electronically deliver their product. It includes infrastructure and customer support costs, aspects directly related to the product or service you’re administering, rather than those broader expenses associated with running your business as an entity. However, because a software company does not have to produce something new when it sells a new subscription, its COGS do not increase when it gains a new customer.ĬOGS is different from operating expenses (OPEX) like marketing and other general administration costs that don’t affect the actual production of your product. In a business selling a material product, your volume of sales requires you to increase the amount you spend on materials to produce said product. What makes software companies unique is that your COGS does not necessarily have to increase in correlation with your revenue. The saying “You have to spend money to make money” is embodied by COGS, and the amount you spend on your business will likely be influenced by the industry you are in. COGS is a variable cost that will grow as a software company sells more of its solutions. It is, in summary, the sum of the expenses of creating a product or service. In layman’s terms, a software company’s COGS is simply the cost the company incurs to deliver its solution to its customers. So how can they proceed confidently in this space and use their best judgment to define their COGS? Here’s what software executives should know about COGS: What is COGS? For software companies in particular, the cost they incur to deliver their solutions to their customers can seem hard to pin down. Its components will vary by industry, and unfortunately, companies are sometimes left to figure out what should be included in their COGS on their own. It can be instrumental in measuring how well a company can scale and how much money is available to run a business.ĬOGS is an essential metric. Cost of Goods Sold (COGS) is a key metric private equity investors and strategic buyers use to evaluate companies.

While COGS is a seemingly straightforward accounting principle, it is frequently miscalculated by software company entrepreneurs.

Cogs acronym