Related expenses: The related expenses a company incurs from their sales often differ substantially between a product and service. Service based businesses might include raw materials used in the course of the service they provide, but the expenses these organizations include in their COGS for services calculation are often not materials based. Physical products: Companies that sell a physical item use COGS to itemize the materials used to produce and manufacture their product. Like traditional COGS, service-based COGS does not include any overhead or fixed expenses.Ī few of the primary differences between traditional COGS and COGS for services include: This figure represents the expenses your business incurs in the process of providing a service to your customers. ![]() Since there are typically no "goods sold" in a service based company, many organizations refer to this metric as cost of revenue or cost of sales. COGS do not include any overhead or fixed costs your company incurs whether or not you sell any products.ĬOGS can also apply to businesses that provide services rather than products. Related: Cost of Goods Sold: Definition, Uses and How To Calculate What is the cost of goods sold for services?Ĭost of goods sold, or COGS, is a metric used primarily by product based companies and industries that determines how much your organization spends on product-related expenses. In this article, we explain what cost of goods sold for services is, describe the value of reviewing the costs of goods sold, list what to include in your calculation and provide a formula to use to find your organization's cost of goods sold for services. ![]() While often associated with products, cost of goods sold is also a useful calculation for businesses in the service industry. Many companies calculate the cost of goods sold to help establish baseline expenses and costs. Businesses use a number of metrics to help understand their financial position and stability.
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