1. Finance
  2. Operational Costs

Cost of Goods Sold (COGS)


The total cost directly associated with the production and upkeep of the product or services sold by a company. It provides insights into production efficiency and directly impacts profitability.


COGS (retail) = Starting inventory + Purchases + Direct Labor + Direct Factory Overheads - Ending Inventory COGS (Software/Service Industry) = Direct Labor Costs + Direct Platform/Hosting Costs + Third-party Software License Costs


A software company pays $10,000 in server costs, $5,000 in cloud fees, $4,000 in customer support, and $2,000 in essential engineering maintenance, resulting in a COGS of $21,000.

In the formula, Direct Labor Costs includes salaries or wages of personnel directly involved in the provision of the service or maintenance of the product/service.