For bootstrapped SaaS founders, understanding your expenses is critical. Without a clear view of where your money is going, your business can quickly turn into a financial drain.

This basic guide will help you break down your operating costs, categorize expenses, and figure out how much you should be paying yourself.

Why Take Note of Your Expenses?

Let’s say you’ve reached 5K in MRR. That’s a big milestone. At this stage, you might be thinking about quitting your job or even taking on a mortgage. But if you don’t fully understand your expenses, that 5K might not take you as far as you think.

Banks look at your actual profit, not just revenue, when approving loans. If most of your revenue is being eaten up by expenses, you might need to increase your profit before you can qualify. Keeping track of expenses also helps you see whether your business is actually making money or just breaking even.

Understanding Opex vs. Capex

Every expense falls into one of two categories: operating expenses (Opex) or capital expenses (Capex). This is common accounting terminology, but it’s useful for any founder to understand.

Opex covers ongoing, recurring costs like hosting, file storage, databases, email tools, and customer support software. These are the things you need to keep your business running smoothly.

Capex includes one-time costs like business registration, domain purchases, and software licenses. These tend to be bigger expenses, but they don’t happen every month. Some people classify yearly expenses under Capex, but that’s up to you.

Basics - Revenue vs. Cash Flow vs. MRR

Revenue is the total amount of money coming into your business. Profit is what’s left after covering all expenses. MRR, or monthly recurring revenue, represents predictable income but can be misleading if you have a mix of annual and monthly plans. Understanding these numbers will help you make better financial decisions as your SaaS grows.

Basics - Doing an Audit of Your Expenses

To get a better handle on your spending, open a spreadsheet and sort your expenses into three groups:

1. Critical Opex. These are the recurring costs that keep your business running, like hosting, customer support tools, and databases.
2. Personal expenses. These are things you pay for through the business but also use personally, like a phone bill or travel expenses.
3. One-time expenses. These include business registration, legal fees, or software purchases that don’t come up every month.

Once you’ve sorted everything, you’ll have a much clearer picture of where your money is going. When I did this early in my SaaS journey, I realized I was spending too much on tools that didn’t provide much value. Cutting those expenses helped me increase my profit instantly.

How Much Should You Pay Yourself?

To figure out your salary, think about how much you need to live comfortably, not just survive.

For me, that number was 4K per month. That included living expenses, an emergency buffer, business Opex, and taxes.

That meant my SaaS had to bring in at least 12,100 per month for me to feel financially secure. This covered my personal expenses + business expenses + extra money(for future Capex) in the business bank account. Anything above that was extra profit.

What I Learned From Categorizing My Expenses

When I went through this process, I discovered a few key things:

1. My operating costs were too high. I switched from an expensive third-party API to a cheaper alternative and moved from a costly email marketing tool to a per-email-send model. That alone saved me $100 per month.
2. Keeping a $500 buffer was a good idea. Unexpected refunds, chargebacks, or failed payments can happen at any time, and having a cushion helps smooth things out.
3. I set up a secondary account to hold extra business profits. This became my war chest for future ventures and unexpected costs.

What About taxes?

I set aside tax money in my Capex account. There’s no rigid rule here, but it helps avoid surprises when tax season comes around.

Running a Tight Ship

At 5K MRR, you have to be mindful of every dollar you spend. At 10K, you still need to keep an eye on your expenses. The SaaS world is competitive, and spending money on tools or services that don’t provide real value will hurt your bottom line.

Before committing to a new service, take a look at the competition and see if there’s a better alternative.

Closing Thoughts

Use this guide as a starting point, but also talk to an accountant. They might have even better insights on managing your expenses.

If you’re wondering when to quit your job, there’s no perfect answer. I left mine at 4K MRR, but I also had 10K saved up, which gave me three months of leeway to push my business forward.

And if you’re young and living at home with your parents, this might be the best time to go all in.