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Cost of Goods Sold

According to Wikipedia, cost of goods sold “refers to the inventory costs of the goods a business has sold during a particular period.” COGS is different in different business (ie. software vs retail).

For businesses selling hard goods, we define COGS as the direct costs attributable directly to the production of the goods sold by a company. It includes the cost of the materials plus the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales costs.

Due to the nature of software, there is no inventory but there are costs to deliver the application.Leverage agile frameworks to provide a robust synopsis for high level overviews. Iterative approaches to corporate strategy foster collaborative thinking to further the overall value proposition. Organically grow the holistic world view of disruptive innovation via workplace diversity and empowerment.

How to calculate COGS in SaaS

Sum of the following:

  • Hosting fees (our highest expense after salaries and benefits)

  • Third-party web fees like content delivery networks, embedded software, etc
  • Support personnel costs
  • Customer on-boarding costs (e.g. client implementation personnel costs)
  • Note: Credit card fees and other billing fees often are not cost of goods sold for SaaS companies and are instead general and administrative fees

How to calculate COGS in everything else

Sum the following:

  • Cost of materials
  • Direct labor costs used to produce the good
  • Indirect expenses such as distribution costs and sales costs

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