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That's called COGS, or Cost Of Goods and Services. It's separate the kind of costs he's talking about. If you're working on COGS you're working in a profit cent

That's called COGS, or Cost Of Goods and Services. It's separate the kind of costs he's talking about. If you're working on COGS you're working in a profit center generating revenue, not in a cost center performing necessary but expensive functions. Tech doesn't usually measure COGS, because the cost of another user on a website is near zero.

throwanem 4y ago
I've seen the distinction drawn, usefully I think, between "Cost of Revenue" as more or less fixed operating costs eg AWS spend, and "Customer Acquisition Cost" as specifically the average spend to gain "another user on a website", usually in a way that can be either considered in the aggregate or broken out per channel such as for specific ad vendors or similar. I think "COGS" as discussed here would probably be a rollup of both? Not sure; while I've been in orgs where the cost center/profit center distinction was made, I haven't run into a situation where COGS was a metric I saw used.
- awkward 4y ago
  Cost of Revenue and Customer Acquisition Cost are both different metrics. COGS is used in manufacturing in order to peg inputs to a per widget basis. Cost of Revenue gets used in tech because per customer costs are both a bad way to measure it and likely to be fractions of cents. Customer Acquisition Cost gets used in subscription businesses to measure sales and marketing performance. It can be relevant alongside COGS if you're manufacturing the thing you're selling subscriptions to, but that's kinda rare.
  - throwanem 4y ago
    Got it. Thanks for the clarification!
names_are_hard 4y ago
I'm not sure if you're talking about at the executive level or at the engineer level, but here's some anecdata: At the big tech (household name) I work we definitely spend a lot of energy talking about COGS a engineers. We have a LOT of data, and we spend a lot of money on cloud services to keep our product running - you want to add a new piece of data to this database to support some new feature? Go calculate how much it'll cost in storage and compute and if it's above some threshold, request special approval. You want to improve performance by caching our indexing? Let's talk about how much that'll be in COGS. This stuff ain't free, all those users add up. The interesting bit is that all this COGS isn't actually money that transfers hands, the cloud we use is our own. But it isn't free and internal accounting is taken seriously.

throwanem 4y ago

I've seen the distinction drawn, usefully I think, between "Cost of Revenue" as more or less fixed operating costs eg AWS spend, and "Customer Acquisition Cost" as specifically the average spend to gain "another user on a website", usually in a way that can be either considered in the aggregate or broken out per channel such as for specific ad vendors or similar. I think "COGS" as discussed here would probably be a rollup of both? Not sure; while I've been in orgs where the cost center/profit center distinction was made, I haven't run into a situation where COGS was a metric I saw used.

awkward 4y ago
Cost of Revenue and Customer Acquisition Cost are both different metrics. COGS is used in manufacturing in order to peg inputs to a per widget basis. Cost of Revenue gets used in tech because per customer costs are both a bad way to measure it and likely to be fractions of cents. Customer Acquisition Cost gets used in subscription businesses to measure sales and marketing performance. It can be relevant alongside COGS if you're manufacturing the thing you're selling subscriptions to, but that's kinda rare.
- throwanem 4y ago
  Got it. Thanks for the clarification!

names_are_hard 4y ago

I'm not sure if you're talking about at the executive level or at the engineer level, but here's some anecdata: At the big tech (household name) I work we definitely spend a lot of energy talking about COGS a engineers. We have a LOT of data, and we spend a lot of money on cloud services to keep our product running - you want to add a new piece of data to this database to support some new feature? Go calculate how much it'll cost in storage and compute and if it's above some threshold, request special approval. You want to improve performance by caching our indexing? Let's talk about how much that'll be in COGS. This stuff ain't free, all those users add up. The interesting bit is that all this COGS isn't actually money that transfers hands, the cloud we use is our own. But it isn't free and internal accounting is taken seriously.