According to Wikipedia, cost of goods sold “refers to the inventory costs of the goods a business has sold during a particular period.” Of course, due to the nature of software, there is no inventory but there are costs to deliver the application.
Here’s what we include in our cost of goods sold calculation:
- Hosting fees (our highest expense after salaries and benefits)
- Third-party web fees like content delivery networks, embedded software, etc
- Support personnel costs
- Customer on-boarding costs (e.g. client implementation personnel costs)
- Note: Credit card fees and other billing fees often are not cost of goods sold for SaaS companies and are instead general and administrative fees