FTE Annual SalaryBenefits & TaxesBonusAgency FeesContractor Hourly RateAvg. Weekly HoursEquipment & SoftwareFully Loaded SalaryContractor Total CompCost DeltaContractor Annual SalaryFTE Annual CostMost teams already have an opinion on this trade-off. Few have done the math. This model converts a salary into what your company actually pays, making the FTE and Contractor costs genuinely comparable. The output isn't just a cost comparison. It's the starting point for a broader conversation about where full-time commitment is worth the premium. Run it twice: once with the low-end of your compensation bands, once with the high-end. The range between those two outputs is your uncertainty — and your negotiating room.
The AI suite of product features is making SaaS Gross Margin look much closer to Service-based business models. Software used to benefit from a nearly negligible cost of fulfillment. Now it must account for multiple COGS levers that scale with usage. In order to keep your offering priced sustainably, inference costs need enough room to flex with the introduction of new models & use cases. To do this, calculate your expected customer volume first. Translate the volume to their token usage and relative cost of the model used. Finally, include any pricing for API calls or compute time. Stress test where your pricing breaks relative to user behavior or model consumption.
Knowing your product margins should be your first priority to understand your business. This allows you to be intentional about pricing. Businesses have failed because they didn't charge enough to cover the cost of fulfillment. However, some have thrived by purposely making this decision. As long as the volume of this "loss leader" product can be covered by the volume of other profitable products/services. Understand where that coverage tipping point is among your product offerings, and adjust if you ever find yourself on the wrong side.
When measuring the financial health of a business, Balance Sheet ratios sit closer to be lagging indicators than P&L ratios. This is because they reflect the consequences of operational decisions — how revenue is collected, how inventory is managed, how the business is financed — rather than the decisions themselves These ratios are a standard part of financial analysis in any capital-intensive or credit-sensitive business. In many cases, the most scrutinized ratios are the liquidity ones ( Current and Quick Ratio) because lenders and counterparties use them to assess default risk before extending credit or trade terms. If you're monitoring balance sheet ratios in your business, anchor your working capital assumptions (Days Sales Outstanding, Days Inventory Outstanding, and Days Payable Outstanding) to actual collections and payment data rather than contract terms. Also track Return On Assets and Return On Equity together: a rising ROE driven by leverage rather than improving ROA is a warning sign, not a win.
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