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COGS (Cost of Goods Sold)

Cost of Goods Sold is an accounting term that can seem a little scary, but it's pretty simple. It's sometimes referred to as Cost of Sales (COS). Simply put, it's any costs directly related to providing the service that you're offering to a customer.

Depending on how detailed you track your cost it can include things like:

  • Gas to get to/from the job
  • Labor that you hire to help with the job
  • Subcontractors
  • Equipment rental fees
  • Supply costs that you don't pass off or bill directly to the customer

It does not include the costs to run the business itself (those are operating expenses). It also doesn't include costs to market and/or advertise your business.

As a small example, say you're doing a landscaping job and you're charging the customer $5000 for the job. Your costs for the job might look something like this:

  • $100 - Gas for the truck to get to/from the job
  • $10 - Gas for the equipment you use on the job
  • $200 - Seed, fertilizer, etc. for the lawn
  • $1000 - Rental of heavy equipment for the job
  • $2000 - For the labor/help you hired on the job

Considering those costs, your COGS would be the total of all of those: $3310.