Why COGS Isn't The Most Relevant Cost Metric For SaaS Companies
For most SaaS companies, COGS (which stands for cost of goods sold) is used to calculate gross margin and profit. COGS is an accepted term with a specific definition under U.S. Generally Accepted Accounting Principles (GAAP) — and is widely used as part of calculations to gauge the health and valuation of a company. Like many accounting practices, COGS stems from the industrial era, when most businesses were concerned with the creation of physical goods.