Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) is the direct cost of producing the goods or services your business sells. It includes materials, direct labor, and any other costs directly tied to delivering your product or service, but not overhead like rent, admin, or marketing.
Types
Product COGS
For a retailer: the wholesale cost of inventory sold. For a manufacturer: raw materials plus direct labor.
Service COGS
For a service business: the direct labor cost of delivering the service, plus any materials consumed. A dental practice's COGS includes supplies and clinical staff time.
Why it matters
COGS is the foundation of gross margin. If your COGS is rising faster than your revenue, your gross margin is compressing even if revenue looks healthy. Tracking COGS by category such as supplies, labor, and materials tells you exactly where profitability is being eroded.
Real-world example
A dental practice generates $100,000 in monthly production. Clinical supply costs are $8,000. Clinical staff payroll directly tied to patient care is $35,000. Total COGS: $43,000. Gross profit: $57,000. Gross margin: 57%.
Ask FREM about your data
Ask FREM: "What is my COGS as a percentage of revenue this month?" to get an instant breakdown by cost category from your QuickBooks data.
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