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How do you calculate Profit & Loss (P&L) for SaaS companies?

P&L is an important tool for understanding the financial performance of a SaaS company.

Profit and Loss (P&L) is a financial statement that summarizes a company's revenues, expenses, and profits or losses over a given period of time (e.g. month, quarter, year). It is an important tool for understanding the financial performance of a SaaS (Software as a Service) company and identifying areas where the company can improve its profitability.

To calculate P&L for a SaaS company, you will need to know the following:

  1. Revenues: This is the total amount of money that the company receives from its customers in a given period of time.

  2. Cost of goods sold (COGS): This is the direct cost of delivering the company's software service, such as cloud hosting and infrastructure, third-party software licensing, customer onboarding, and technical support costs.

  3. Gross profit: This is the profit that the company makes after subtracting COGS from revenues.

  4. Operating expenses: These are the costs that the company incurs in order to run its business, such as marketing, sales, research and development, and general and administrative expenses.

  5. Operating profit (EBIT): This is the profit that the company makes after subtracting operating expenses from gross profit. Note: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a related but distinct metric that also adds back depreciation and amortization charges.

  6. Interest expense: This is the cost of borrowing money, such as interest on loans and credit card balances.

  7. Taxes: These are the taxes that the company must pay to the government.

  8. Net profit (NET): This is the profit that the company makes after subtracting taxes and interest expense from operating profit.


Once you have these numbers, you can use the following formula to calculate P&L:

Revenues - COGS - Operating expenses - Interest expense - Taxes = Net profit

 

For example, if a SaaS company has revenues of $100,000, COGS of $20,000, operating expenses of $50,000, interest expense of $5,000, and taxes of $10,000, their P&L would be:

$100,000 (Revenues) − $20,000 (COGS) − $50,000 (Operating expenses) − $5,000 (Interest expense) − $10,000 (Taxes) = $15,000 Net profit

 

For further guidance on managing your SaaS financials, contact the BIAS team