That number — 129.And 1 — landed in RM plc's 2023 annual report without much fanfare. Just another line item in the consolidated income statement. But if you know where to look, it tells a story about how this company actually makes money, where the pressure points are, and whether the strategy they've been selling investors is holding up.
Most people skip straight to revenue or adjusted EBITDA. Practically speaking, cost of sales? And that's the boring bit. Except it isn't.
What Is RM plc and Why Does This Number Matter
RM plc isn't a household name unless you work in UK education or public sector IT. They've been around since 1973 — started as Research Machines, selling microcomputers to schools. Now they're a £200m+ turnover business split across two main divisions: RM Education (software, curriculum, assessment) and RM Technology (hardware, managed services, infrastructure).
The 129.5m versus £218.1 figure? Practically speaking, revenue grew too — £234. 9m — but cost of sales grew faster*. That's cost of sales in £ million for the year ended 30 November 2023. 4m in 2022. In real terms, up from £118. That's the headline.
Gross margin slipped from 45.Even so, on £234. And 3m of gross profit that didn't materialise. So naturally, 5m revenue, it's roughly £2. 9%. On top of that, one percentage point doesn't sound like much. Worth adding: 9% to 44. For a company targeting double-digit EBITDA margins, that matters.
The split behind the number
Here's what the notes don't shout about: RM doesn't break down cost of sales by division in the primary statements. You have to dig into segment reporting. Because of that, hardware resale, device procurement, installation labour — those are low-margin, high-cost lines. In 2023, RM Technology carried significantly higher cost-of-sales intensity than RM Education. Software licences, SaaS subscriptions, assessment platforms — much lighter on direct cost.
So when the Technology division grows faster (which it did, +11% vs Education's +3%), the blended cost of sales has to rise. That's not a crisis. It's mix shift. But it's also not a free pass — investors need to know whether the lower-margin work is strategic or just revenue chasing.
Why Cost of Sales Deserves More Attention Than It Gets
Most commentary on RM focuses on the pivot to recurring revenue. "SaaS transition," "ARR growth," "margin expansion ahead." All true, directionally. But cost of sales is where the rubber meets the road on that narrative.
It reveals the real economics of "managed services"
RM Technology's managed services contracts — device lifecycle management, on-site support, cloud migration — look like recurring revenue. And they are, contractually. But they're also people-heavy. Engineers. Project managers. Which means field technicians. Those salaries sit in cost of sales, not opex. So as managed services scale, cost of sales scales with them. The margin profile never quite reaches pure SaaS levels.
That's not a flaw. But it means the 129.It's a business model choice. 1 isn't "noise" — it's the fingerprint of a hybrid model.
It signals procurement discipline (or lack thereof)
Hardware costs are largely pass-through. RM buys devices from Dell, HP, Lenovo — sells them to schools and trusts. If cost of sales creeps up disproportionately on the hardware side, it could mean:
- Weaker negotiating take advantage of with OEMs
- More complex configurations (higher spec, more peripherals)
- Supply chain premiums not fully passed to customers
In 2023, component shortages had largely eased. But logistics and freight remained elevated. In real terms, did RM absorb some of that? The gross margin dip suggests maybe.
It frames the opex story
Here's a trick analysts use: compare cost of sales growth to administrative expense growth. Even so, 0%. 2m to £82.Here's the thing — 6m — about 5. Cost of sales rose 9.That said, in 2023, admin expenses (excluding exceptional items) rose from £78. Revenue rose 7.6%. 1%.
So direct costs grew faster than revenue, and overheads grew slower. That's why not great. It means the operating take advantage of everyone models — "fixed cost base, variable revenue" — isn't playing out cleanly yet. That's... In practice, okay. The variable bit is still too variable.
How the 129.1 Breaks Down (As Far As We Can Tell)
RM's notes give us fragments. Not a full waterfall. But enough to reconstruct the drivers.
Want to learn more? We recommend will it sink or will it float and why does the atomic radius decrease across a period for further reading.
Hardware procurement: the big chunk
Devices, peripherals, networking kit — this is the bulk. Because of that, low margin, high volume. 1. Which means schools buy in waves (summer refresh cycles, DfE funding windows). RM's job is to be the preferred channel partner. Probably 60-65% of that 129.The cost here is mostly the invoice from the OEM plus freight, warranty, maybe imaging/pre-configuration labour.
Third-party software royalties and licences
RM resells a lot of other people's software — Microsoft licences, safeguarding tools, MIS integrations. But those carry royalty or wholesale costs. Think about it: higher margin than hardware, but still direct cost. Growing as RM bundles more "solutions" rather than just boxes.
Delivery and installation labour
This is the sneaky one. When RM sells a managed service, the ongoing* support staff are in cost of sales. So are the project teams doing initial deployments. In 2023, with several large MAT (Multi-Academy Trust) wins ramping up, deployment labour would've spiked. Now, that's revenue-recognised-over-time work — costs incurred now, margin recognised later. Timing mismatch.
Cloud hosting and infrastructure
RM hosts platforms for clients. Azure, AWS, their own data centres. That's why those cloud bills are direct costs. As Education division SaaS grows (RM Unify, RM Integris, assessment platforms), hosting costs climb. But they should climb sub-linearly* to revenue — that's the SaaS promise. Worth watching whether they are.
Assessment and content production
RM Education creates exam content, marks papers, runs digital assessment. Think about it: 2023 saw continued recovery in formal assessment volumes post-COVID. Psychometricians, subject experts, markers — those are direct costs. Seasonal, lumpy, but predictable. Costs returned with them.
What Most People Get Wrong About This Figure
"Cost of sales going up is bad"
No. The question is rate*. That's the yellow flag. Not red. Which means 9% cost growth on 7% revenue growth? Cost of sales should* go up if revenue goes up — especially when the revenue mix shifts toward hardware and services. Yellow.
"Gross margin decline means the model is broken"
Gross margin fell 100 basis points. But adjusted EBITDA margin improved* — from 10.1% to 10.8%.
— because RM is investing in higher-margin services and cloud-based offerings that drive long-term value. The gross margin dip reflects the timing of one-time deployment costs and hardware investments, not a fundamental erosion of profitability.
The Hidden Levers: Services and Software
RM’s pivot toward software-as-a-service (SaaS) and managed solutions is the real story. Its assessment and content business, which sits in the "services" bucket, has margins north of 60%. Meanwhile, cloud-hosted platforms like RM Integris — which automates school data workflows — are pure-play SaaS with gross margins exceeding 80%. These segments are still scaling, but their growth is outpacing the hardware business. Investors should focus less on the headline cost of sales and more on the trajectory of these higher-margin verticals.
The Infrastructure Gamble
RM’s decision to host platforms internally — rather than rely solely on third-party cloud providers — could be a double-edged sword. While it gives the company control over data security and uptime (critical for schools), it also ties capital expenditure (CapEx) to growth. If cloud costs were to spike or demand for on-prem solutions wane, that flexibility could backfire. But for now, the strategy seems to align with RM’s long-term vision of being an end-to-end education infrastructure provider.
The Road Ahead
The 129.1 cost base isn’t a bug — it’s the price of building a tech-enabled education ecosystem. As RM scales its SaaS offerings and shifts deployment costs into revenue-recognition periods, the cost-revenue mismatch should narrow. The key risks lie in execution: can RM maintain its preferred partner status with schools amid tighter budgets? Can it avoid over-investing in infrastructure that outpaces demand? And will its software margins hold as it competes with incumbents like Google and Microsoft?
In short, RM’s financials are a work in progress. The numbers look messy today, but the model — if executed well — has the potential to deliver durable growth. For now, the company remains a bet on the future of education technology: one where hardware is just the starting point, and software, services, and data are the finish line.
