Cost of Goods Sold (COGS) for SaaS includes all direct costs required to deliver the product to customers, such as cloud infrastructure, customer support, and third-party API fees. COGS directly impacts gross margin.

Example: A SaaS company with $2M in annual revenue spends $300,000 on AWS hosting, $100,000 on customer support staff, and $50,000 on third-party APIs. Total COGS is $450,000, resulting in a gross margin of 77.5%.