finance
COGS (Cost of Goods Sold)
Direct costs of delivering the product or service - materials, direct labor, delivery costs.
Definition
COGS (Cost of Goods Sold) includes only the direct costs of producing or delivering what you sell: materials, direct labor (people whose time goes into the product/service), packaging, delivery, payment processing. It excludes overhead (rent, admin, marketing). For service businesses, COGS is mostly the loaded labor cost of the people delivering the service. The discipline of clean COGS accounting is what makes gross margin actually meaningful - mix overhead into COGS and you lose the signal.
In your business
- →Be strict about what's in COGS - only direct delivery costs
- →For service businesses, COGS is mostly delivery labor - track it per project
- →Compare COGS as % of revenue over time - rising % means efficiency is declining