Cost of Goods Sold (COGS)

Cost of goods sold (COGS) — sometimes called cost of revenue (COR) or cost of sales (COS) — is the costs that are directly associated with making a company’s products or services.

Cost of Goods Sold (COGS) is an essential financial metric that represents the direct costs incurred in producing or acquiring the goods or services sold by a business. It includes the cost of materials, labor, and other direct expenses directly attributable to the production process. COGS is calculated by subtracting the value of the opening inventory from the sum of the cost of purchases and direct production expenses during a specific period. The resulting figure indicates the direct expenses associated with the goods or services that were sold. As a small business owner, understanding your COGS is crucial for evaluating your profitability and pricing strategies. By tracking and analyzing your COGS, you can make informed decisions about inventory management, production efficiency, and pricing adjustments to maximize your profits. It also helps you assess the financial health of your business and make strategic decisions for growth and sustainability. Having a clear grasp of your COGS allows you to identify opportunities for cost savings, optimize your operations, and maintain a competitive edge in your industry. By managing your COGS effectively, you can improve your bottom line and drive sustainable business growth.