Welcome and Introductions
Joel Pettigrew:
Welcome to this Yotascale webinar. Today, we're diving into a few key financial concepts—ones that are relevant to nearly every business—but focusing specifically on how they create pressure on technology organizations.
We'll cover:
- The difference between COGS (Cost of Goods Sold) and Opex (Operating Expenses)
- How these concepts impact infrastructure cost and cloud spending
- Practical approaches for cost management, including tagging and allocation
- How Yotascale helps support better practices aligned with financial strategy
By way of background, I’m Joel Pettigrew. I’ve been with Yotascale for a while now. Prior to that, I led technical product management at Western Governors University and worked on analytics products at Workfront, which was acquired by Adobe. I also spent time at McGraw Hill during their digital transformation, helping bring together data from product, operations, and finance to improve reporting and understand contribution margin at a granular level. That’s the perspective I’m bringing to today’s conversation.
Jeff Harris:
Thanks Joel—and thanks to everyone for joining. I’ve been with Yotascale for eight years, since we were a seed-stage company. Before that, I worked at Google Cloud and VMware, helping customers manage and optimize their infrastructure costs. At the time, FinOps wasn’t even a term yet. I’ve followed the evolution of this space and am now a certified FinOps professional. My focus here is helping customers adopt cost management best practices and ensuring we build a product that meets evolving needs.
COGS and Opex: Financial Foundations
Joel Pettigrew:
Let’s start with the basics: COGS and Opex.
COGS—Cost of Goods Sold—includes any direct expense related to delivering your product. Think of it as variable cost: if your product sells more, the cost to deliver increases.
Opex—Operating Expenses—includes fixed costs like salaries, marketing, and infrastructure. These costs occur whether you sell one unit or a thousand.
Here’s why this matters: most technology companies have costs that should be categorized as COGS, but are often lumped into Opex instead. Why? Sometimes it’s to keep reported COGS low for investor optics. Other times, it’s just due to lack of visibility.
When variable costs like cloud usage or data processing aren’t correctly attributed to the product generating that usage, you miss critical signals about profitability and growth.
Contribution Margin and Strategic Misalignment
Let’s take a hypothetical product—Workforce Identity Cloud. It might show a healthy 18% margin at a high level. But once you dig in and include indirect infrastructure usage and shared resources, that margin could shrink significantly.
When those costs aren’t attributed correctly, the business might invest more in that product line, not realizing it’s actually driving lower returns than reported.
We’ve seen this play out across companies where CTOs get pressured to reduce “fixed” costs as usage increases—when in fact, those rising costs are directly tied to customer growth and should be treated as variable.
Engineering and Finance: Speaking Different Languages
Jeff Harris:
This disconnect shows up in how engineering and finance see the world.
To finance, cloud spend often looks like a black box—a massive, undifferentiated line item on the ledger. Engineering teams are then pulled into ad hoc requests to justify spend, answer questions, and create reports manually.
Manual tagging is usually where companies start. But tags are inconsistent, missing, or used differently across teams and vendors. Without normalization, it’s impossible to get a clear picture.
The Case for Rule-Based Allocation
Instead of relying on inconsistent tagging, Yotascale introduces rule-based allocation—a repeatable, automated approach for mapping cloud costs to what the business cares about: products, teams, and revenue centers.
This involves:
- Ingesting data from AWS, GCP, Azure, Kubernetes, Snowflake, Databricks, and more
- Normalizing data across vendors and formats
- Defining business rules for cost allocation (e.g. by product line, usage metric, or team)
- Assigning shared costs using custom logic or proportional models
- Enabling insights and reporting that reflect the true cost of delivering your product
This model supports more accurate reporting, better strategic decisions, and more productive conversations between finance and engineering.
Customer Example: SaaS Tech Co.
We worked with a customer—a fast-growing SaaS company—whose finance team wanted to map costs by cost center. But their engineering teams worked on shared services across multiple products, making cost attribution difficult.
By implementing rule-based allocation, we helped them shift from a team view to a product-centric view of cloud spend. Now, they can clearly see how much each product costs to run and how those costs relate to revenue.
Common Questions
Q: Is this just a digital company problem? What about manufacturing?
Joel: Even traditional manufacturers face this. Their physical products are now part of digital ecosystems, and adding digital costs to COGS during a transformation can distort reports. Having internal clarity—even if reported differently—is critical for making sound investment decisions.
Q: Is tagging really enough?
Jeff: Not usually. Tags vary wildly by vendor. AWS is decent, but many SaaS vendors like Databricks and Snowflake lack tagging maturity. The industry is improving—initiatives like FOCUS aim to standardize cost reporting—but today, most teams still face major gaps in coverage and consistency.
Q: Should all costs be included in COGS?
Joel: No. You need appropriate allocation logic. Some costs are truly shared infrastructure or enterprise tech expenses and should stay in Opex. The goal isn’t to make everything look like COGS—it’s to associate relevant costs to revenue in a way that reflects reality.
Live Demo Highlights
Jeff Harris (demo walkthrough):
- Showcased Yotascale’s interface, focusing on the transition from team-based to product-based cost views
- Demonstrated how data is ingested, normalized, and allocated using rules
- Highlighted the assistant feature that helps generate custom lenses and reports
- Explained how business users can ask natural-language questions about cost drivers and receive visualized answers
Bringing It All Together
Joel Pettigrew:
If you can associate cloud costs with revenue-driving products, you shift the narrative from “we need to cut spending” to “this is what it costs to support growth.”
That gives engineering leaders air cover from the board and ensures the whole organization makes better, more strategic decisions.
It’s not just about cost reduction—it’s about accountability, clarity, and alignment.
Stay Connected
If you’d like to connect or ask more questions, feel free to reach out:
Thanks again for joining us today!
