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.
Cost of professional services comprise primarily personnel costs.
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.
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