COGS — Cost of Goods Sold
Definition: The direct costs of producing the goods or services a company sells, including materials and direct labor. COGS is subtracted from revenue to calculate gross profit.
Example
A coffee brand selling $1M in beans with $400K in green-coffee, roasting, and packaging costs has a COGS of $400K and a 60% gross margin.
When you'll hear it
COGS shows up most often in board meetings, quarterly business reviews, and strategy off-sites. When someone uses it, they're usually referring to cost of goods sold — and they expect the room to already know what that means.
FAQs
What's included in COGS?
Only direct costs tied to making the product: raw materials, direct labor, manufacturing overhead. Sales, marketing, and rent are not COGS.
Why does COGS matter?
It determines gross margin, which sets the ceiling on every other margin in the business. Bad COGS = no fix downstream.
What does COGS stand for?
COGS stands for Cost of Goods Sold.
What does COGS mean in business and finance?
The direct costs of producing the goods or services a company sells, including materials and direct labor. COGS is subtracted from revenue to calculate gross profit.
Where will I hear COGS used at work?
COGS comes up most often in board meetings, quarterly business reviews, and strategy off-sites. It's used as shorthand for cost of goods sold, so people assume you already know the term.