Calculating COGS - and why it matters

Glenn Gill has been advising startups for a long time now, with real hands-on help (we know!). And he’s seen many of us mess up the same things. One of those are COGS ☠️ (cost of goods sold). Glenn has seen first hand how startups and scaleups are getting their COGS wrong.

Keeping a tight grip on your COGS is essential for any company – but especially those in scaling mode. It is not rocket science, but it is easy to underestimate the value of getting it right. Even small mistakes here will eat straight into your bottom line, leaving you with less cash than you expected. And as we all know... Cash is everything 💰

Want to learn how to do it right?

‍COGS (Cost of Goods Sold):  

In a SaaS business refers to the direct, recurring costs required to deliver the core software service to customers. These costs scale with revenue and are tightly linked to the ongoing operation, uptime, and support of the product.

Typically included in COGS:

• Hosting and infrastructure – cloud service fees (e.g. AWS, Azure, GCP)
• Customer success team salaries – but only those focused on onboarding, technical support, and retention (not expansion or upsell)
• Third-party software, APIs, or data feeds – if bundled into the product and essential for its delivery
• DevOps / Site Reliability Engineering (SRE) – employees responsible for maintaining the live production environment
• Support engineering / technical operations – staff directly supporting users or maintaining uptime
• Amortized implementation costs – when necessary to activate a customer and deliver core service (excluding bespoke or one-off projects)

Not included in COGS:

• Sales-oriented CSMs or account managers (go under Sales & Marketing or OpEx)
• R&D, product management, and feature development (classified as R&D)
• Non-essential onboarding or training (can fall under OpEx or be capitalized if project-based)