Is cloud optimization in your next round?

It’s the worst kept secret in Silicon Valley: when it comes to the valuation and fundraising prospects of your business, few things matter more than margin. But more often than not, founders and executive teams stare right passed amazingly accessible opportunities to tune up their margins and shift the business into a higher gear.

​In this article, we will take a look at how cloud infrastructure spending can drag down gross margins and how a new generation of optimization technologies let you take back control of your cloud and push those margins back up and to the right.​

What is Gross Margin?

​SaaS metrics like MRR and churn seem to be getting all the attention right now, but gross margin is right up in terms of signals for evaluating the strength of a business. Put simply, gross margin is your revenue minus cost of goods sold (COGS), divided by your revenue. This magical percentage indicates the efficiency of your business to yield meaningful profits and serves a key performance indicator for analysts and investors alike.​

Why should I care about Gross Margin?​

SaaS companies can be notoriously difficult to pin down with realistic margin metrics because there isn’t a warehouse full of raw materials and ready-to-ship goods sitting around. The distribution costs of a great SaaS business fall toward zero thanks to the magic of the Internet.

​Instead, the costs of goods sold for a SaaS business is concentrated in two primary areas: **people** and **infrastructure**.

​Software companies already create outsized value with smaller teams than traditinal businesses and operate in a highly competitive environment for talent, so it’s a tough path to walk in search of hidden value. Infrastructure, however, isn’t talked about enough.​

How can cloud optimization enhance my Gross Margin?

​Delivering high quality software services in the modern economy requires the embrace of cloud infrastructure and services to bring our visions to life. Fast growing, winner-take-all markets create land-grab opportunities and there’s always that next idea. Hacker culture encourages us to experiment and play, leveraging cloud resources on an opex basis to keep our teams moving.

​But all this freedom and pay-as-you-go services creates an escalating mountain of complexity and hidden costs that little by little start to drag our margins. The sheer size, opacity, and deep connection to our products & teams (where the values comes from!) can make it really enticing to just turn a blind eye to and look for uplift elsewhere.

Don’t fall into this trap. The best companies that have the best products built by the best people who are backed by the best investors have the best margins.

​At Opsani, we build our margins on machine learning. The Opsani platform provides cloud infrastructure optimization as a service that makes managing your infrastructure cost of goods sold a breeze. So do your team a favor, before heading out to raise that next round, make sure your margins are right with Opsani.