Cloud Computing Cost Management - with Phil Pergola, CEO CloudZero

**Ray Wright** (0:00)
Hello, I'm Ray Wright, Founder and CEO of BenchMarket, and your host of the Metrics that Measure Up podcast. We talked to a wide variety of the top B2B SaaS and Cloud thought leaders, CEOs, executives, investors, and people just like you to discuss the metrics and benchmarks they use to make metrics informed and benchmark validated decisions. Now, on to today's show. Welcome to today's episode of the Metrics It Measure Up podcast. Today, I am joined by Phil Pergola, the CEO of CloudZero. We'll be covering four main topics with Phil today, including cloud cost trends as a percentage of COGS. What are the trends? Second, reducing cloud costs beyond vendor negotiation. Third, the challenges to reduce operational cloud costs. And fourth, how can SaaS CEOs and CFOs know they actually have a cloud cost optimization opportunity? So with that, Phil, please take a moment to give a brief overview of your journey to the seminal moment in your career arc, becoming a guest on the Metrics and Measure Up podcast.

**Phil Pergola** (1:18)
Well, thank you, Ray. It's great to be here. So just how did I end up on the Metrics that Measure Up podcast? So first and foremost, we had an introduction through the work that you're doing with the SaaS Standards Board, which I think is amazing. So Jimmy Orcillo has been an advisor on that, introduced us. He's one of my board members. I think it's not an accident that I ended up on this podcast. When I was young, I wanted to be an actuary, which tells you everything that you wanted to know as a child. I wanted to be an actuary, but somehow I ended up in the software business for lots of good reasons. Then at various points in my career, I've been really focused on metrics and how that ties into the work that I'm doing. So as some examples, when I was leading a sales engineering team, when I was at a company called BladeLogic that eventually went on to become public, I was laser focused at one point on figuring out how we could maximize our conversion rates, particularly when we did a head-to-head proof of concept against our No More Competitor back then, which was a company called Opsware. Then fast forward, I ended up running professional services businesses at companies like BMC Software. I was very focused on how do we ensure a high satisfaction rate while at the same time doing it with a healthy gross margin.
That had evolved into me running customer success teams focusing on, how do we maximize net retention and to do it in a very positive way for our customers. Now, as the CEO of CloudZero, I'm really focusing on not only how do we drive very high growth for our business, but do it in a very efficient way looking at all the different SaaS metrics. At different points in my career, I've just been very focused on how do we measure the impact of the work that I'm doing, and so through that, just been super excited about metrics and benchmarks.

**Ray Wright** (3:04)
Well, I love the background, and I didn't know you worked at a company that competed against software. Big shout out to Mark Andreessen and Ben Hurwitz there, who I worked with at Netscape back in the day.

**Phil Pergola** (3:15)
They were meant to come together.

**Ray Wright** (3:17)
Exactly. Well, A16Z has done a pretty phenomenal job in the VC industry, but let's talk about gross margins because we do all this benchmarking. I just looked at the KeyBank Capital Markets, a longitudinal review from 2010 and 2000 through 21, so 11 years. Phil, gross margins have remained fairly consistent between that 71 to 75 percent in the B2B SaaS. My question to you is, why are Cloud costs such an important line item since they don't seem to be increasing that much, at least as measured by COGS?

**Phil Pergola** (3:54)
Yeah. Sure. Well, first, if you're looking at a B2B SaaS company, the number one expense that most of us would have, myself included, would be our headcount. But then as you look at companies that are in the Cloud, or that is B2B SaaS companies that are building their software in the Cloud, their second largest expense most commonly is actually their Cloud costs. For most companies, when you look at their gross margins, there are two elements in their gross margins. It's going to be from a cost perspective, it's going to be their Cloud costs and their headcount.
It's really important that companies understand what is driving those costs. What we're seeing is a trend where it's becoming harder and harder to actually understand what drives those costs. While at the same time, there's more complexity in the Cloud because it's beyond just the big three infrastructure Cloud providers like AWS, Azure GCP, you're starting to see companies spending billions of dollars on Snowflake, Databricks, MongoDB. Companies are spending millions of dollars on their observability tools for managing that Cloud, and it's just becoming harder and harder to manage.