Really enjoyed this read, I don’t yet have access to financials and not sure how many of these questions I’d get answered to yet, but I have gotten more involved in managing some of the engineering related costs. Slowly beginning to understand the difference between expensive and business expensive.
Was a few months back, wanting to add CodeRabbit into the review process and it had done such a good job in the trial period that I really felt it would add value, and the team loves it, but in my head $15/dev was expansive. There was a good laugh when I put “expensive” and “$15” in the same sentence, and the team love the little rabbit.
Isn’t it interesting how we can be chasing short term savings at the expense of long term gains? If you understood your operating margins you’d probably see that the $15/dev spend was a no brainer.
That is definitely part of it and I actually have site on much of the teams direct expenses, infrastructure billing and I manage all relevant subscriptions.
For me it’s more about understanding between expense and investment in the business context.
I read the Netflix story and one of the things I took away is I absolutely cannot spend company money the way I spend my own.
This list of questions for my CEO once we resume 1:1s is getting really long.
It is great to see love given to all of those business metrics and to the fact that we need to speak business in our C-Suite reports
I feel like the top two metrics that we can directly impact though are CAC and Churn.
I think we talk about how to reduce churn a lot, but we don't talk about how to reduce CAC very much. As we release new features we open up the pool of customers that are interested in our product. This gives sales and marketing a new pool of cheap to acquire customers. Over time it becomes more expensive to sell to this pool because we already sold to the low hanging fruit. That is where we come in with new features that open up a new pool of customers where can find low hanging fruit and keep our CAC low.
I would love to hear your thoughts on this and maybe even read a future article on this.
This is a great write-up of some very important numbers. We used something similar with a slight variation in our SaaS company. Our COGS number included engineering talent required to keep the business running (mostly DevOps). That gave us insight of how cost efficiently our product could be delivered to our customers on a continuous basis. We still were at 95%+ Gross Margin with that calculation. All remaining costs, such as R&D, marketing, sales commissions, and administrative were in OPEX, because they could be dialed up and down based on the health of the company and success of the campaigns. Of course, accounting has to follow its own GAAP rules, which is fine.
For SaaS companies, I tend to share this article as a good benchmarking source on OPEX spend: https://www.scalexp.com/blog/saas-benchmark/rd-spend/
Great share - this is GOLD!
Really enjoyed this read, I don’t yet have access to financials and not sure how many of these questions I’d get answered to yet, but I have gotten more involved in managing some of the engineering related costs. Slowly beginning to understand the difference between expensive and business expensive.
Was a few months back, wanting to add CodeRabbit into the review process and it had done such a good job in the trial period that I really felt it would add value, and the team loves it, but in my head $15/dev was expansive. There was a good laugh when I put “expensive” and “$15” in the same sentence, and the team love the little rabbit.
Isn’t it interesting how we can be chasing short term savings at the expense of long term gains? If you understood your operating margins you’d probably see that the $15/dev spend was a no brainer.
That is definitely part of it and I actually have site on much of the teams direct expenses, infrastructure billing and I manage all relevant subscriptions.
For me it’s more about understanding between expense and investment in the business context.
I read the Netflix story and one of the things I took away is I absolutely cannot spend company money the way I spend my own.
This list of questions for my CEO once we resume 1:1s is getting really long.
It is great to see love given to all of those business metrics and to the fact that we need to speak business in our C-Suite reports
I feel like the top two metrics that we can directly impact though are CAC and Churn.
I think we talk about how to reduce churn a lot, but we don't talk about how to reduce CAC very much. As we release new features we open up the pool of customers that are interested in our product. This gives sales and marketing a new pool of cheap to acquire customers. Over time it becomes more expensive to sell to this pool because we already sold to the low hanging fruit. That is where we come in with new features that open up a new pool of customers where can find low hanging fruit and keep our CAC low.
I would love to hear your thoughts on this and maybe even read a future article on this.
This is a great write-up of some very important numbers. We used something similar with a slight variation in our SaaS company. Our COGS number included engineering talent required to keep the business running (mostly DevOps). That gave us insight of how cost efficiently our product could be delivered to our customers on a continuous basis. We still were at 95%+ Gross Margin with that calculation. All remaining costs, such as R&D, marketing, sales commissions, and administrative were in OPEX, because they could be dialed up and down based on the health of the company and success of the campaigns. Of course, accounting has to follow its own GAAP rules, which is fine.