# Cost of Sales

The following table sets forth the components of cost of sales for the period indicated.

For the year ended December 31,
2013	2014	2015
Amount	% of
total	Amount	% of
total	Amount	% of
total
(RMB in thousands, except percentages)
Cost of software and hardware equipment .....	275,460	75.2	199,076	69.3	298,664	75.8
Emlpoyee compensation .................................	49,491	13.5	54,381	18.9	53,516	13.6
Installation costs ............................................	11,570	3.2	4,855	1.7	4,766	1.2
Amortization and depreciation........................	7,185	2.0	14,024	4.9	14,018	3.6
Traveling expenses.........................................	5,698	1.6	4,027	1.4	6,064	1.5
Business tax charged to operations.................	3,215	0.9	3,590	1.2	7,022	1.8
Others............................................................	13,657	3.7	7,410	2.6	9,762	2.5
Total cost of sales.........................................	366,276	100.0	287,363	100.0	393,812	100.0

Cost of software and hardware equipment primarily includes purchase fees for servers, workstations, memory modules, network equipments and third-party software from third-party suppliers for our in-house developed solutions and products, which we procure based on orders from our customers. During the Track Record Period, our cost of software and hardware equipment, representing the largest component of our cost of sales, fluctuated as a result of the fluctuation of our revenue. For more details, see “Financial Information—Results of Operations.”

# Gross Profit and Gross Profit Margin

The following table sets forth a breakdown of our gross profit and gross profit margin derived from each business line for the period indicated.

For the year ended December 31,
2013	2014	2015
Gross profit	Gross profit
marign (%)	Gross profit	Gross profit
marign (%)	Gross profit	Gross profit
marign (%)
(RMB in thousands, except percentages)
Solutions ............................	79,632	20.7	71,303	23.5	125,342	27.6
Services ..............................	19,369	32.5	19,454	32.1	36,203	47.0
Products .............................	37,687	64.9	28,249	66.3	50,626	67.9
Total ..................................	136,688	27.2	119,006	29.3	212,171	35.0

During the Track Record Period, the general increase in our gross profit margin was mainly driven by our effective procurement management and increased economies of scale due to increased sales. For further details, see “Financial Information—Results of Operations.”

# Value-added Tax Refunds and Government Subsidies

We develop and update, if necessary, operating software incorporated in our solutions and products. In 2013, 2014 and 2015, we received value-added tax refunds in the amount of RMB19.7 million, RMB16.3 million and RMB23.9 million, respectively, representing 3.9%, 4.0% and 3.9%, respectively, of our revenue in these periods. We receive such refund of value-added tax on our sales of self-developed software products as part of the PRC government’s policy of encouraging software development. While sales of software products are generally subject to value-add tax of 17% in the PRC, companies that develop their own software products and have such products registered with the relevant tax authorities in the PRC are entitled to refund of value-add taxes equivalent to the excess over 3% of their value-added tax burden. CDV WFOE, as a registered software enterprise, is entitled to such 14% value-added tax refund based on the recurring sales of our solutions, services and