Accurately understanding and tracking the cost of goods sold (COGS) and cost of revenue (COR) can be critical to the success of every business, yet many entrepreneurs and small business leaders tend to confuse these two terms.

Cost of Goods Sold (COGS) refers to direct costs associated with producing or buying products for sale. This includes expenses like direct labor, raw materials, and manufacturing overhead. These are costs that can easily be traced back to a specific product.

Cost of Revenue (COR) is slightly different. It includes all costs necessary to generate sales, not just those associated with producing goods. This can include overhead, customer service, marketing and advertising expenses, freight, discounts, and more. COR is most often associated with services businesses, but any company that generates revenue from sales should track COR.