Cost of Goods Sold (COGS) is an accounting term that tracks the cost associated with producing a service or product. It’s a vital part of any business model since it helps managers understand how much it costs to produce their services. At its core, COGS represents all direct expenses related to creating the service or products your company sells. This includes labor, raw materials, and depreciation of machinery used in production; essentially, anything that goes into the production process. By tracking these costs, businesses can gain valuable insight into their production costs and adjust pricing accordingly. With proper planning, businesses can use COGS to their advantage when it comes to establishing profitability.