InvoiceTools
LoginSign Up

Home/Glossary/COGS (cost of goods sold)

COGS (cost of goods sold)

COGS (cost of goods sold) is the direct cost of what you sold: the materials and labor that went into the job. Overhead such as rent and insurance is not part of it.

Example

On a $2,000 job with $700 of materials and $500 of labor, COGS is $1,200 and gross margin is $800.

Also called cost of sales, direct costs, or job costs.

Open the markup calculator

What it means in practice

COGS counts only what a job consumed. Timber, hardware, rentals, 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.

Markup against margin on the same jobA fifty percent markup on a cost of one thousand gives a price of fifteen hundred and a margin of thirty three percent. A fifty percent margin gives a price of two thousand.FIFTY PER CENT OF WHATThe same job, the same cost of 1,000.00, priced twiceCOSTPROFIT50% markup on cost500 on 1,500 is a 33% margincost 1,000500.00= 1,500.0050% margin on price1,000 on 2,000 is a 100% markupcost 1,0001,000.00= 2,000.00Markup is measured against what the job cost you. Margin is measured against what you charged.A 50 percent markup is a 33 percent margin. Quote one thinking it is the other and a third of the profit isgone.
One cost of 1,000, priced twice. Fifty percent of the cost and fifty percent of the price are two different amounts of money, which is where a quote quietly loses its profit.

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 drywall 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.

Common questions

What counts as cost of goods sold for a trade business?

Materials, waste, rentals, 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 labor part of COGS?

The labor 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.

Two ways to send the document

Download it and send it yourself, and nothing is stored on our servers. Or send it as a link and stop wondering whether it arrived, was read, or is sitting in a queue because something is missing from it.

How invoice tracking worksBuild a document free

The first four documents you send as a tracked link are free with an account. Everything else on InvoiceTools.com stays free. Generators, calculators and downloads need no account; template designs need a free one.