Profit margins

The cost of goods sold (COGS) plays a major role in shaping profit margins. In a SaaS model, this covers the expenses of operating and maintaining the application. By optimising application architecture, SaaS providers can cut operational costs and, in turn, boost margins. In the following sections, we’ll look at the architectural dimensions that have the noticeable impact on COGS.

Tenancy model defines how resources are allocated among tenants in a SaaS application. Unlike traditional software, which usually serves a single tenant, SaaS must support multiple tenants within the same environment. If legacy software is simply lifted into a SaaS model without rethinking tenancy, it can create inefficiencies that hurt scalability and reduce profit margins.

Tenant resource management is another key factor in COGS. It covers the salaries and benefits of engineers responsible for managing deployments and updates of the SaaS application. Without efficient processes, these costs can rise significantly as the customer base grows.

Tenant decommissioning should be a core part of your data retention strategy. In a subscription-based model, customers can leave at any time, often leaving behind large volumes of data from their active usage. Once they churn, that data is no longer tied to subscription revenue and quickly turns into a cost burden for the SaaS provider, that scales with every customer who exits.

Tenant cost allocation maps infrastructure and operational expenses to individual tenants, giving SaaS providers a clear picture of profitability. With these insights, teams can focus on high-margin customers or segments and direct efforts toward the areas with the greatest impact. At the same time, it helps to discover unprofitable customers or underperforming features, guiding pricing adjustments and helping product teams focus development on what really drives value.

Reviewing your SaaS architecture through these lenses helps reveal opportunities for optimisation. By refining infrastructure and minimising operational overhead, you create the conditions for stronger margins and sustainable scalability.