Cost of Goods Sold (COGS)
The direct costs of producing the goods or services a business sells, including materials and direct labor, excluding broader overhead expenses.
COGS includes only costs directly tied to production, like raw materials and the labor to make a product, while expenses like rent, marketing, and administrative salaries are considered operating expenses rather than COGS.
Subtracting COGS from revenue produces gross profit, making it a foundational number in calculating gross margin and understanding how efficiently a business turns sales into profit before overhead is applied.
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