Cost of Goods Sold (COGS)
The direct costs attributable to producing the goods or services a company sells during a period.
What is COGS?
Cost of goods sold (COGS), also called cost of revenue or cost of sales, represents the direct costs involved in producing the goods or services that a company sells. For manufacturers, COGS includes raw materials, direct labor, and manufacturing overhead. For retailers, it is the purchase price of inventory sold. For software and services companies, it often includes hosting costs, support staff, and amortization of capitalized software development costs. COGS is subtracted from revenue to calculate gross profit. Low COGS relative to revenue indicates high gross margins and pricing power, while high COGS signals competitive pricing pressure or commodity-like economics.
Example
In FY2024, Apple reported net sales of $391 billion and cost of sales (COGS) of $210 billion, resulting in a gross profit of $181 billion and a gross margin of approximately 46% — meaning Apple keeps $0.46 of every dollar of revenue before operating expenses.