Company financials for CTOs: see what your decisions do to the P&L
CTO CORE is a financial framework for Chief Technology Officers, built on 4 numbers: COGS, OPEX, Revenue and Earnings. Make the calls a CTO makes below and watch your CFO's numbers move.
A SaaS company with of revenue and engineers. Each engineer costs a year, fully loaded. Change them to match your company. The rest of the costs scale with revenue.
Production hosting is COGS, so every dollar you save lifts gross margin. On a committed-spend contract, the savings wait until it renews.
Building the product is R&D, which is OPEX. Gross margin doesn't move. Operating margin does.
Same payroll, but running production is COGS. Finance splits it by where people actually spend their time, so gross margin drops and operating income stays put.
Qualifying feature work moves to the balance sheet, so OPEX drops this year. Cash doesn't move. Your CFO and auditors decide what qualifies, and the amortization hits COGS from the day the feature ships.
Agents that build the product are R&D. Agents that run it are COGS. Cut a few hires and see if the math still works.
| Revenue | $12,000,000 | |
|---|---|---|
| COGS | $2,400,000 | |
| Gross profit | $9,600,000 | 80% gross margin |
| OPEX | $9,000,000 | |
| Operating income | $600,000 | 5% operating margin |
The 4 numbers
- COGS
- The direct cost of delivering your product: cloud, third-party services in the product, support and SRE.
- OPEX
- Everything below gross profit: R&D (most engineering), sales & marketing, and G&A.
- Revenue
- What you earned from customers in the period (recognized revenue), not what you billed or collected.
- Earnings
- Net income. What's left after every cost, interest and tax. It's not cash.
New to this? Start here and take it one number at a time.
CTO CORE: company financials for CTOs
CTO CORE is a financial framework for CTOs. It teaches you the 4 numbers your company runs on, so you can talk money with your CEO and CFO. It was created by Etienne de Bruin and it's an implementation of the CTO Levels™ Framework.
New here? Start here. It takes you through CTO CORE one idea at a time.
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