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Financial ratios.

FINANCIAL RATIOS In an earlier survey of public companies (Soft*letter, 12/15/87), we noted that software companies typically spend about 18% of their net revenues on COGS (cost of goods sold). Our current survey data--based on a much larger sample of private and public companies--yielded exactly the same 18% figure for COGs spending.

One popular theory holds that software manufacturing is an easy area to generate significant economies of scale. However, when we analyzed our responses by company size, the economies of scale proved to be somewhat elusive; in fact, we actually discovered a trend toward some diseconomies of scale:

(The "100% Range" column shows the entire range of reporte COGs expenditures; the "50% Range" column shows expenditures reported by the middle 50% of companies in the category.)

To get a clearer sense of the cost elements that are assigned to a typical COGs ratio, we also asked respondents to supply subtotals for their COGs expenditures. These subtotals add up to more than 18% (in part because not all software companies have royalty obligations), but the numbers are probably an accurate reflection of proportional spending patterns in this category:
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Title Annotation:software manufacturing survey
Date:Sep 1, 1989
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