What Is Gross Margin?
Gross margin shows how much of each rupee of sales is left after the direct cost of making or buying what you sold.
Read guide →What Is COGS?
Cost of goods sold (COGS) is the direct cost of producing or buying the products you sold. It usually includes materials, direct labour and inward freight.
It generally leaves out costs like marketing, office rent and administration. Getting COGS right matters because it drives your gross profit and gross margin.
Formula
COGS = Opening Inventory + Purchases − Closing Inventory
Example
Opening stock ₹50,000, purchases ₹3,00,000 and closing stock ₹70,000 give COGS of ₹2,80,000.
Frequently asked questions
Does COGS include salaries?
Only direct labour involved in making the product. Other salaries are usually operating expenses.
Do service businesses have COGS?
Some track direct service delivery costs in a similar way, but practice differs. Ask your accountant how to classify yours.
More guides
What Is EBITDA?
EBITDA measures operating earnings before interest, tax, depreciation and amortization.
Read guide →Revenue vs Profit
Revenue is the money you bring in. Profit is what you keep after costs.
Read guide →BizCalc provides calculators and educational information for general informational purposes only. Results are estimates and should not be considered financial, tax, accounting or investment advice.