Is there a benchmark for % of revenue that an enterprise SaaS business should spend on systems infrastructures like AWS or the equivalent?

Roughly … maybe 5% of your revenues if you are relatively “compute-lite”, and probably around 8-10% on average. Most SaaS companies aim for 80% gross margins, and at least come close. I.e., they try to spend < 20% total of all revenues on providing the service itself, including all hosting, support, an allocated portion of tech ops, and almost/all call center and similar support costs.

The 20% of costs here typically are taking up by (x) direct costs for hosting and infrastructure and (y) the human and software costs to provide support and maintain infrastructure, including salaries, benefits, bonuses and options.

The salaries and other costs in support & ops typically take up 10%+, with 5%-10% for hosting and direct infra costs.

If you are spending more than 20% of each $$ that comes in on compute even in a very compute-heavy app … your prices are simply too low. You need to raise them.

For example, somewhat compute-heavy Domo recently went through this, and drove down hosting costs (and pricing up) to drive their gross margins up from 64% to 70% on software:

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Published on August 21, 2018

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