The Indirect Cost Trap: Why Your Margins Look Better Than They Are (And How To Fix It)

When a SaaS company scales, something curious happens. The cloud bill grows. One team swears it’s Kubernetes. Another blames the Black Friday promo. 

But when you’re unsure whether that increase is tied to healthy SaaS growth or simply overspending, your margins are already at risk. 

That gap between what’s spent and what’s understood is where indirect costs live. Yet these costs rarely show up in dashboards. Well, until it’s too late.

In this guide, we’ll unpack what indirect SaaS costs are, why they matter for your gross margins, and how to turn them from murky overhead into tools for profitable growth.

We’ll also share a single platform to help you go from “we think this is platform cost” to “we know exactly which product feature, customer, or team drove this.”

Related read: Curious to see how cloud costs break down across providers and services every month – and what AI/ML spend looks like as part of that? Check out our Cloud Economics Pulse, with a new report on the second Tuesday of every month.

What Are Indirect Costs? (Indirect SaaS Costs Explained)

Indirect costs are the expenses that keep your SaaS product running but can’t be directly traced to a single customer, feature, or workload.

They’re the connective tissue of your business. Think of shared infrastructure, tools, and processes that support everything else but don’t belong neatly to any one revenue stream.

In traditional accounting, indirect costs fall under “overhead” like rent, utilities, administrative salaries, and so on.

But in modern cloud environments, they include shared data pipelines, load balancers, logging systems, and internal developer platforms that every product team relies on but no one in particular owns.

Direct costs are much easier to account for in comparison. Consider the following.

Direct Vs. Indirect Costs: What’s The Difference?

Direct costs, often referred to as direct SaaS costs or cost of goods sold (COGS), are the expenses you can directly attribute to delivering your product or service. On the flip side, indirect cloud costs are shared, supportive, or unallocated expenses that keep your platform running but can’t be traced cleanly to one cost driver.

SaaS direct costs often scale predictably with usage and include:

If you can say “this cost exists because that customer or feature exists,” it’s a direct cost. 

They are the easiest to analyze, forecast, and optimize, and they often dominate your SaaS COGS. Consider this:

Image: This is a breakdown of a SaaS platform’s cloud spending into three main categories: POCs (the free trial as part of the sales process), R&D, and Customers (the Direct COGS to deliver the service).

But indirect SaaS costs don’t disappear when customers churn, for example.

Neither do they grow in a perfectly linear way when usage increases. Either way, they still affect your margins, sometimes dramatically.

Understanding that difference is the foundation of a working FinOps and cloud cost optimization strategy.

When your engineers know which costs are direct (and can be optimized at the code or architecture level) versus which are indirect (and require organizational alignment), they can make smarter trade-offs to protect your bottom line, without slowing innovation.

Finance and FP&A, meanwhile, can gain the clarity they need to calculate your true SaaS gross margin, model profitability accurately, and make confident SaaS pricing and budgeting decisions.

The question then is, “what types of indirect costs should your SaaS company be aware of right now?”

Examples Of Indirect SaaS And Cloud Costs

Let’s break them down into the major categories you’ll find across most SaaS organizations.

1. Shared infrastructure and platform engineering

Every SaaS product relies on shared systems that support multiple services or teams. Examples here include:

These are classic indirect cloud costs essential for uptime, yet rarely tagged to a specific product feature or customer.

Also See: How Gaming Software Company Beamable Turned Shared, Multi-Tenant Infrastructure Costs Into Cost per Customer Metrics

2. Internal development, testing, and staging environments

Engineering teams spin up environments for testing, QA, staging, sandboxing, and experimentation. These environments often run 24/7, even when they’re idle, and inflate your bill in stealth mode.

Consider these:

These are vital for reliability and speed, but because they don’t serve end users directly, they’re easy to classify (and forget) as indirect spend.

3. Observability, monitoring, and security tooling

These include visibility and control tools that collect logs, metrics, alerts, and compliance data. They strengthen your platform’s reliability, but they don’t directly generate revenue. 

Granted, you might use a top cloud cost intelligence platform to uncover, say, $1.7 million in SaaS and cloud savings, as we did. 

See: How We Used CloudZero to Find Over $1.7 million in cloud savings in less than 60 hours (And closed a $32 Million series B fundraising round in the weakest funding environment since the dawn of the pandemic.

But most observability and compliance tools are designed to protect and optimize value, not produce it.

Quick examples here are:

Most of these are shared cloud costs across teams/products/services and are critical to business continuity and trust.

4. Shared data and analytics infrastructure

Think of the pipelines that move, transform, and analyze your data:

These costs can balloon as your data footprint grows. But they often remain some of the hardest to allocate with precision.

5. Machine learning inference and model serving

As AI and LLM-powered features become standard in SaaS, the underlying inference infrastructure can quietly balloon into a major indirect cost — without clear attribution.

These costs typically fall into the “shared data and analytics” category but warrant their own spotlight:

They’re critical to delivering intelligent experiences — but unless you deliberately allocate them, these high-variance costs can distort your unit economics and make AI features look cheaper (or more profitable) than they really are.

You don’t need a spreadsheet army to fix it. Just the ability to track and attribute model usage — down to the team, feature, or customer triggering those GPU cycles.

6. Core services and shared APIs

Behind every feature lies a network of shared APIs and platform services that keep your entire SaaS ecosystem connected.

Think of:

These are critical to delivering value, but they don’t belong to any one customer. And their costs often scale with overall usage, not individual feature activity.

7. Cloud management, networking, and storage overhead

Many indirect cloud costs are baked into the operational layer of the cloud itself. Examples here include:

As you’ve already noticed, these tools are necessary for reliability and compliance, but they also represent a large share of “invisible” spend that engineers rarely see.

8. Internal SaaS tools and enablement services

Beyond cloud infrastructure, most SaaS companies rely on dozens of third-party SaaS tools to build, ship, and support software (not directly tied to the final product or service). These costs also fall into the indirect bucket:

You’ll use these tools to enable productivity and collaboration across engineering and business teams. But they’re rarely accounted for in most cloud, COGS, or SaaS reporting.

9. People and process-driven costs

Not all indirect costs are purely technical. Some are organizational and tied to how your teams coordinate, manage, and govern cloud operations. Consider these.

While harder to quantify, people and process-driven costs still affect cloud efficiency, and you can model them into indirect spend categories for a complete picture.

That’s not all.

Why It Is So Crucial To Capture, Understand, And Fix Indirect SaaS Costs ASAP

Indirect costs quietly shape your SaaS margins, cloud unit economics, and decision-making. When they’re invisible or unallocated:

Now, here’s how to change that.

How To Allocate And Manage Indirect Costs (The Smarter, FinOps Way)

Managing indirect costs starts with visibility. The FinOps approach reframes indirect costs not as overhead to cut, but as shared investments you can measure, allocate, and optimize with precision.

Here’s how.

Start by identifying the major categories of indirect spend. These include platform services, observability, data infrastructure, and internal tooling. We promised a platform to help you do this in practice, and here it is.

In CloudZero, for example, you can automatically detect tagged, untagged, and untaggable indirect costs. Then you can create dynamic cost groups for easier allocation and tracking.

See: How To Handle Untaggable And Untagged Cloud Spend The Smarter, Precise Way

From there, group them into logical cost pools such as “Shared Infrastructure,” “Developer Enablement,” “Data Platform”, and so on.

This step alone makes hidden spend visible, giving you a clean foundation for precise allocation.

Once you know your cost pools, decide how to distribute them. Common allocation methods include:

There’s no single correct method, so shoot for consistency and clarity instead of mathematical perfection. Focus on establishing transparent rules everyone understands and trusts.

Related Read: The Best Cloud Cost Allocation Methods Explained in 10 Minutes

Here’s where top-performing FinOps teams stand out. Instead of focusing only on the easy 60-80% of directly attributable costs, they strive for 100% allocation. Meaning, they ensure every dollar spent, even indirect or shared, is tied to a business driver.

Unallocated indirect and shared costs are effectively blind spots. If 20% of your spend sits in “shared” or “miscellaneous,” you’ll miss knowing your true cost per customer, SaaS COGS, or cost per project.

Instead, you can ingest, enrich, and normalize your cost data automatically in CloudZero. Then you can automatically allocate 100% of your SaaS spend, no matter how complex your cloud environment is, down to hourly insights like Cost per Feature. Picture this:

See this cost intelligence approach in action for yourself with your free, quick tour of CloudZero here. Better yet, book your free demo here to experience the same tools PicPay used to reduce its annual cloud spend by $18.6 million. 

Accurate tagging and a thoughtful account hierarchy are the basis of cost attribution. When every resource carries metadata (team, product, feature, environment, etc) you can automatically connect usage to ownership.

Related Read: How Remitly Allocates 50% More Cloud Costs Without Tagging

Larger SaaS companies often go a step further by using separate cloud accounts for major business units or products. This creates clear boundaries, simplifies reporting, and reduces the noise of shared resources bleeding across teams.

However, inside CloudZero, you can enforce tagging standards, surface untagged spend, and automatically categorize resources so nothing gets lost in the gray zone — regardless of your team size.

Visibility enables accountability. So start with showback, where you share each team’s portion of shared costs without assigning financial responsibility. This step alone drives better behavior because your team sees the impact of their actions.

As your FinOps maturity grows, evolve to chargeback. This is where teams or product lines absorb the costs they generate. It’s not punishment. It’s about giving engineering, product, and finance the same cost reality so everyone makes decisions from an informed baseline.

Read Later: Chargeback vs Showback: How to Choose the Right Cost Allocation Model For Your FinOp Implementation

Manual allocation can’t keep up with the pace of the cloud. Spreadsheets break. Tagging drifts. Teams forget. But automating visibility and allocation ensures accuracy and scalability. 

Inside CloudZero, indirect and shared SaaS costs flow into a single pane of glass, automatically categorized by customer, feature, or environment. 

Image: Note the cost of the Billing Ingest feature, sorted by customer. Those colorized tags are Customer IDs (actual customer names are hidden for privacy).

What that means is everyone, from finance to engineering, gets to see the same real-time truth.

And as your architecture evolves, so should your cost model. So, review allocations quarterly to make sure your cost pools and tagging still reflect how your teams actually work. This continuous refinement turns your FinOps strategy from a reactive reporting process into a living discipline that grows with your business.

Turn Indirect Costs Into Cost Intelligence That Powers Profitable Growth

When left unmanaged, invisible costs quietly eat into margins, distort pricing decisions, and make innovation feel expensive. But when you surface and allocate them with precision, they become some of the most powerful indicators of business health.

The fix isn’t stricter budgeting. Visibility with context does it.

With CloudZero, you can ingest all your cloud and SaaS spend in minutes, automatically allocate 100% of it (including the messy, indirect costs), and map every dollar to the specific customers (who), products (what), and processes (why) that are driving your business forward.

Suddenly, what used to be overhead turns into granular insight you can act on immediately, like cost per feature, cost per customer, and cost per deployment. And instead of learning about inefficiencies at month’s end, you can see them unfold in real time. Meaning, you can act before they hit your margins.

With that level of clarity, your finance folks can budget and forecast with confidence. Your engineers can innovate and experiment without losing sight of cost impact. And your organization can scale with profitability built in.

High-performing SaaS companies like Drift, Duolingo, and Grammarly already use CloudZero to transform their cloud costs into growth intelligence. We’ve just helped Drift uncover more than $2.4 million in savings. You can, too. Take this free demo now to convert your indirect SaaS costs from margin killers to profitability enablers.

Direct Vs. Indirect Costs FAQs

What are indirect cloud costs? (indirect SaaS cost definition)

These are shared or unallocated expenses that support your SaaS product but can’t be traced to a single customer, feature, or workload. Examples include shared Kubernetes clusters, CI/CD pipelines, logging, data warehouses, and internal developer tools.

How do indirect costs differ from direct costs? (direct Vs. indirect SaaS costs)

Direct costs can be directly tied to delivering your service, like compute, storage, or API calls for a specific customer or feature. Indirect SaaS costs support operations across multiple teams or services and can’t be directly assigned. Both are part of your total SaaS COGS.

Why do indirect costs matter in SaaS? (impact on SaaS margins)

If you ignore indirect costs, you will understate your true cost of service and overstate your margins. On the flip side, allocating indirect costs accurately helps you calculate your cost per customer, cost per feature, and unit economics that reflect your truest financial health.

How do I accurately allocate shared or indirect costs for SaaS?

FinOps teams often start with showback (visibility) and evolve toward chargeback (ownership) as maturity grows. To automate this reliably, use a robust, real-time cloud cost allocation platform like CloudZero to attribute costs to the specific people, products, and processes driving them.

How often should we review our cost allocation model?

At least quarterly. As your architecture and teams evolve, new shared services emerge and tagging drifts. Reviewing regularly keeps your allocation model aligned with how your business actually operates.

Author: Keith MacKenzie

Keith is CloudZero's Content Marketing Manager with a specialty in topics around FinOps, SaaS, AI, and overall work optimization. He also brings more than a decade's worth of background as an editor and writer in the mainstream media and content marketing industries. He's also been to Chernobyl twice – and (sometimes) still has all his marbles.