Snowflake Cost Structure

The snowflake cost structure is skewed toward the product business, which not only generates most of the revenue for the company, but its gross margins.

Indeed, in 2023, on $2 billion of revenue, the company reported $717 million in cost of sales, and $1.35 billion in gross profits, at a 62% gross margin, mostly coming from the product business, which generated a 71% gross margin in 2023, whereas the professional service business is run at 34% negative gross margin, in the same period.

In short, Snowflake leverages the professional service business to boost its product business. And the former is run at negative margins, while the latter is run at widely positive margins.

snowflake-professional-services-business — Snowflake’s professional service business is run at negative margins, as it’s used to provide support for the product business, which instead is run at positive gross margins. Indeed, in 2023 the professional service business reported a gross loss of $43 million in 2023 and nearly $32 million in 2022.

Cost of professional services comprise primarily personnel costs.

snowflake-software-business — Snowflake generates most of its revenue from products of over $1.93 billion in 2023; the product business is the core of Snowflake, and also the business that generates wide gross margins.

Cost of revenue in the product business comprise primarily:

Third-party cloud infrastructure expenses, deployment, and platform maintenance on public clouds.
Personnel-related costs associated with customer support and maintaining service availability and security of the platform.