What’s the right level of COGS spend for SaaS businesses? This spend encompasses not only your data and hosting costs, but also customer success. We hear investors and investment bankers say don’t let the figure exceed 20% of revenue, but that may not be right. Below are COGS as a percent of revenue from 2022 to 2025 for SaaS companies that have gone public since October 2017. Observations follow:
COGS overall is ~26% on median. For the past four years, the figure has been very stable, hovering at 26% when we look at the dataset as a whole. In 2025 the figure was 25%.
Profitable companies are more efficient. For profitable companies, COGS as a percent of revenue is consistently ~20%.
Unprofitable companies spend much more. Interestingly, unprofitable companies spend much more on COGS than profitable ones, with COGS as a percent of revenue coming at ~26%. That figure has grinded lower each year since 2022 when it was 29%. We don’t have a good understanding why unprofitable companies would spend more on COGS than profitable ones.
The outliers. The high-COGS outliers (Health Catalyst, Viant, Fastly) tend to be infrastructure-heavy or data-heavy businesses (CDN, healthcare data, ad tech), while the low-COGS outliers (ZipRecruiter, Gitlab, Doximity) tend to be lighter-infrastructure marketplace or developer-tool models. Capital-intensive subcategories of SaaS should expect structurally higher COGS regardless of profitability.
Overall, we’d say the standard rule of thumb that COGS should be 20% of revenue isn’t right. We’d advise staying between 20% and 25%. If you’re on the high end of that, it will be forgiven so long as you have good growth, retention, and cash efficiency.
Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Other resources we’ve built for founders include: SoftwareMultiples.com; softwareMRRcalculator.com; FounderInvited.com, and TwoFoundersTalk.com. Founders are always welcome to reach out to sammy@blossomstreetventures.com as well.
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