📖 Business terms

COGS (cost of goods sold)

The direct cost of making what you sold.

Formula

Gross profit = Revenue − COGS

COGS includes materials, factory labour and other costs directly tied to producing the goods that were sold.

It excludes overheads like marketing and head-office salaries.

🧮 Example

A bakery's flour, butter and baker wages are COGS; its Instagram ads are not.

🎯 Interview tip

Rising COGS with flat prices squeezes gross margin — a classic profitability case setup.

Used in

Learn next

Gross margin

How much of each sale you keep after the direct cost of making it.

Fixed vs variable costs

Costs that stay put vs costs that grow with sales.

Value chain

Every step from raw material to happy customer.

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