Cost of goods sold (COGS) refers to the total amount of money a business spends to sell a product, which can include resale, packaging, and distribution costs.
It’s important for businesses to understand the amount of money they make every time a customer purchases a product from them. But it’s even more important for them to know how that figure relates to the cost of goods sold (COGS), or the amount of money it costs the business to sell the product.
The cost of goods sold (COGS) includes all of the materials, resale, and labor costs associated with getting your product out to shoppers. It doesn’t include overhead expenses like building rent or marketing costs. In this way, cost of goods sold (COGS) can’t tell a business how much pure profit they’re making on product sales, but it can help the business determine the lowest possible price to sell a product to break even.
Ultimately, cost of goods sold (COGS) is a metric that can help a business better understand — and optimize — its profit margins.