Where do professional services belong on a SaaS P&L—COGS or OPEX? In episode #323, Ben clarifies how to code implementation, onboarding, custom integrations, and the tricky custom development work that sometimes blurs the line with R&D. You’ll learn how correct classification protects gross profit, keeps investor metrics credible, and supports a higher company valuation.
- What You’ll Learn
- What counts as Professional Services
- When custom dev is OPEX (R&D) vs. COGS
- How to handle integrations
- Why coding accuracy matters
- Practical P&L structure
- Why It Matters (Finance & Investor Lens)
- Gross Profit Integrity: Correct COGS ensures reliable margins by revenue stream (subscription, services, usage) that investors expect.
- Credible SaaS metrics: Clean separation supports accurate CAC payback (GM-adjusted), Cost of ARR, and LTV:CAC.
- Valuation: Transparent accounting and financial systems reduce diligence friction and improve confidence in revenue quality.
- Operator Clarity: Treat Professional Services as a self-sustaining business unit with clear targets for utilization and margin.
- Quick Checklist
- Distinct GLs for subscription, usage, services revenue
- Fully burdened Services COGS (wages, taxes, benefits, travel, tools)
- Separate custom dev tracking (R&D vs. billable services)
- Clear DevOps/hosting in COGS for delivery costs
- CS in COGS only if non-selling (no quota/commission)
- Resources Mentioned
Guide: How to Structure a SaaS P&L (COGS vs. OPEX, margins by stream): https://www.thesaascfo.com/how-to-structure-your-saas-pl/
Course: SaaS Metrics Foundation: https://www.thesaasacademy.com/the-saas-metrics-foundation
- Quote from Ben
“Code services where the work and dollars actually live. If you blur R&D and Services, you’ll either hurt gross profit—or your OpEx profile. Either way, investors will notice.”
