On paper, a service can appear highly profitable when revenue is strong and customers keep coming in, while the internal reality tells a completely different story. Support teams are buried in long queues, operations staff are working overtime, developers spend their time fixing issues instead of improving the product, and customer service constantly has to explain things that should have been intuitive in the first place. Still, the service is described as a success.
When the Numbers and Reality Do Not Match
Over the years, I have found myself in many discussions about what should actually be included when calculating the cost price, and therefore the profitability, of a service. Since I worked closely with support, operations, delivery, and customer communication, it was difficult to make the numbers align with the reality people experienced every day. Every sale also increased the workload for the rest of the organization.
As a product manager, when I calculated the actual cost of delivering a service, I also included the time spent on support, onboarding, bug fixing, operations, and follow-up. The response I often received was that these were fixed costs that existed regardless, and therefore could not be included in the actual service cost.
As someone self-taught, without a formal education in economics or impressive titles to show for it, it was not easy to argue against people with far more formal authority than me. Eventually, I accepted that the world apparently worked differently from my own logic.
Later, I became more confident in both my experience and my reasoning. Today, it seems obvious that all costs related to delivering and maintaining a product or service must be part of the total equation when calculating both cost price and profitability.
Why Support and Operations Are Also Part of the Cost
The argument I kept hearing was that costs such as support, operations, administration, onboarding, and customer management could not be included in the product cost because these employees already existed and would be there regardless.
The salaries already exist in the accounting records whether the service is sold or not. But if nobody bought the service, there would also be no need for:
- the support organization,
- onboarding,
- customer management,
- operational resources,
- bug fixing,
- follow-up,
- or the administration surrounding the delivery.
These functions exist precisely because the service exists. If one service generates 10 percent of all support cases, 15 percent of the operational workload, and large amounts of customer service follow-up, it becomes difficult to argue that this is not part of the cost of delivering that service.
In many cases, these are costs that are difficult to measure precisely because they are spread across countless small tasks throughout the organization. But that does not make them invisible.
For example, if support says they spend an average of one workday per month on a specific service, you already have a concrete starting point. Simplified, you can divide the monthly salary by the number of workdays and estimate the cost tied to that workload alone. The same applies to operations, onboarding, customer service, development, and other functions surrounding the service.
Without these considerations, companies often end up with products that look highly profitable in reports while gradually consuming capacity, time, and margins elsewhere in the organization. The numbers may not be perfect, but they usually provide a far more realistic picture than pretending the cost does not exist at all.
There Is a Difference Between Selling Something and Living With It
One thing I have observed over the years is how large the gap can be between products that are easy to sell and products that are actually good to own over time.
Some services look fantastic during the sales process. They offer high value, advanced features, and great possibilities. The challenge is that they also create enormous amounts of internal follow-up. Customers need help, customization, explanations, and close guidance in order to succeed.
Other services almost seem boring in comparison. They may not appear as impressive in the meeting room, but they work reliably, create fewer problems, and require far less energy from the organization. Over time, these are often the services that prove to be the most profitable.
Because customers are not only buying the product itself. They are also buying reliability, availability, response time, expertise, stability, and the feeling that someone actually takes responsibility when things stop working.
This is where many calculations from suppliers become too simplistic. If we reverse the perspective, it is a bit like calculating the cost of buying a car without including tire wear, service, insurance, fuel, maintenance, or repairs. On paper, the car may seem cheap until you actually start living with it in daily life.
The same often applies to products and services from the supplier’s perspective. Selling something is one thing. Operating it, supporting it, improving it, and maintaining it over time, both for the customer and for the organization delivering it, is something entirely different.
Costs That Never Appear in the Reports
I also believe this is one reason why many companies experience growth without necessarily experiencing better profitability. Revenue increases, but complexity increases at the same time. More customers do not automatically mean better financial performance if every new customer also creates more internal strain.
- Support spends a little more time.
- Operations need additional follow-up.
- Developers prioritize bug fixing over innovation.
- Project managers must coordinate more.
- Customer service handles frustration.
- Sales teams need to lower expectations.
Individually, these costs seem small. Together, they can become enormous.
This is often where modern businesses make mistakes. We have become extremely good at measuring what is easy to measure, such as sales, growth, activity, and new customers. At the same time, it is far more difficult to measure internal frustration, technical debt, complexity, and how much energy an organization actually spends compensating for poor decisions over time.
These costs arrive gradually in small portions and slowly become part of normal everyday operations.
At some point, the organization begins spending more energy handling the consequences of previous sales than developing further. That is usually when people start asking why margins are disappearing, why employees are exhausted, or why customers no longer experience the same quality as before.
The Most Profitable Services Are Often the Simplest
It is easy to become fascinated by large customers, complex solutions, and services requiring heavy customization. But the older I get, the more I appreciate products and services that are easy to understand, easy to use, and easy to support.
Every time an employee spends 40 minutes explaining something that should have been intuitive, a little more of the margin disappears, whether it is visible in the accounting system or not.
At the same time, I believe modern working life has made this even harder to discover. We now have more systems, dashboards, KPIs, and reports measuring almost everything we do. And then we end up optimizing what is easy to measure instead of what actually creates long-term value.
A support employee may appear extremely efficient because they close a high number of cases every day. The numbers look fantastic in reports. But perhaps we should instead ask why the same issues keep happening repeatedly.
Because if the organization spends enormous amounts of time handling problems that could have been avoided through better user experience, clearer communication, or smarter product development, it matters little how quickly support tickets are closed.
Then you are measuring the efficiency of symptom treatment, not the quality of the solution itself. And I believe this is exactly where many businesses miss the bigger picture.
I have built dynamic models for investors and management teams showing how profitability developed during scaling. Sometimes we discovered that the company could earn almost as much with 100 customers as with 10,000, because support, operations, and follow-up costs increased almost linearly with growth.
If you have experiences, insights, or different perspectives on this, feel free to leave a comment or get in touch.
