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‍Cost of goods sold (COGS) — sometimes called cost of revenue (COR) or cost of sales (COS) — is the costs that are directly associated with making a company’s products or services. These depend on the company and industry, but could include raw materials, shipping expenses, web hosting, and salaries for certain employees.

Even if they’re important for creating and selling your products or services, indirect costs, such as rent or marketing, aren’t included. Those are categorized as operating expenses (OPEX) instead. 

While there are different formulas depending on whether you sell physical products or services, you can also find COGS at the top of your income statement, right below revenue. Revenue minus COGS equals gross profit. 

Tracking your company’s COGS could help you understand its finances. For example, COGS tend to increase as a company grows. But by comparing your revenue and COGS over time, you can see if you’re spending money efficiently. You may find there are ways to increase profits by lowering your costs — perhaps by negotiating with your current vendors or suppliers, or shopping around to see if you can find less-costly options elsewhere.