We are a SaaS company looking to change the way it allocated certain Sales &
I am wondering if any one else has gone through the process and what was their decision regarding this subject.
Reference URL: http://chaotic-flow.com/saas-business-model-on-the-cloud-the-customer-is-king/
In several SaaS companies I've worked with I've never seen marketing or acquisition costs classified as COGS. I believe they should be classified as S&M costs.
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I work for a SaaS company, and did some research on the matter. Most if not all public SaaS companies classify DAC as an S&M cost. We have begun to conform with this practice. Good luck.
What is the logic behind changing? Is there a specific FASB you're using to get to this change? How would this improve the quality of the information in the financial statements?
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The reason I am asking this question is because a company I am consulting for is doing this allocation. I realize that in does not conform to normal practices, but it got me thinking that maybe we are too locked in our ways of looking a financial statements. I found this article about CAC and it deepened my interest. In other words, with the new amounts of information we are getting today and the different analysis that we are doing, should we reconsider how we allocate certain costs....
I have to agree with Damon Butler. If there isn't a FASB warrants the change, the reclass would be close to creative
We are a startup offering SaaS services to our clients. We allocate ALL marketing costs to sales and marketing. The link that Edward posted has a flaw in its logic - even software companies have client acquisitions costs.
That said, we DO track profitability by deal: we want to know what it costs to acquire a new customer - but this is an internal scorecard metric, not an accounting standard.
Donald raises a good point, one which is becoming more and more blurry as we get more sophisticated in our use of our accounting data.
We forget we have at least three (3) sets of accounting data; financial,
Many times the rules are not quite in sync with each set and this ends up causing the dilemma of "how do we book the transaction".
The answer is tied to a) your business, b) your accounting system, c) your auditors and d) regulatory and contractual lending requirements.
In the final analysis, you need to pick one set of books and ultimately make adjustments to/for the others.
We usually have multiple sales and marketing costs that get rolled into one S&M line item. We have never associated S&M costs to COGS. I am not aware of any benefits of doing so.
The crucial question is - since S&M costs are typically dynamic, will you get a true picture of COGS if you roll S&M costs into it?
Then again, as an internal metric and if you can see the benefit, it would make sense to do it this way.
S&M should stay S&M and then you should calculate your Customer Acquisition Costs (CAC) as part of your SaaS metrics reporting package. A very important number.
