In one line
The direct cost of what you sold: the materials and the labour that went into the job.
Also called cost of sales, direct costs, or job costs.
What it means in practice
COGS counts only what a job consumed. Timber, fittings, hire, the hours worked on site and any subcontractor invoice are in. Your van insurance, your phone and your accountant are not; those are overhead.
The split matters because gross margin is the price minus COGS. Mixing overhead into it makes every job look less profitable than it is, and mixing it out makes the business look more profitable than it is.
Example. On a $2,000 job with $700 of materials and $500 of labour, COGS is $1,200 and gross margin is $800.
Where it shows up on the paperwork
COGS never appears on a client document. It is your side of the line: what the job consumed, sitting behind the price you quoted.
What goes wrong
- Counting your own drawings as COGS on one job and as overhead on the next, so no two jobs can be compared.
- Leaving out waste. The plasterboard you cut wrong is a cost of the job whether or not it went on the wall.
- Forgetting subcontractor invoices, which are direct cost even though someone else did the work.
The tools for this
Related terms
- Gross marginWhat is left of the price after the direct cost of the job, usually shown as a percentage.
- MarkupThe amount added to your cost to reach the price, expressed as a percentage of the cost.
- OverheadThe running costs of the business that no single job pays for directly.
Common questions
What counts as cost of goods sold for a trade business?
Materials, waste, hire, disposal, the hours worked on site and any subcontractor invoice for that job. If the job would not have incurred it, it is not COGS.
Is labour part of COGS?
The labour that went into the job is. Time spent quoting, driving between jobs or doing your books is overhead, because no single job pays for it directly.