Sales Revenue Cost Of Goods Sold (COGS) is a vital measure for any business, as it expresses the cost of producing and delivering the goods or services that generate sales. COGS represents the expenses that go into making a product or service with direct labor, material, and manufacturing overhead costs. It subtracts from gross revenue to arrive at net profit and is related to other important measures such as gross margin and operating income. As such, understanding COGS is key to optimizing a company’s performance and understanding its financial health. COGS can help businesses make informed decisions on pricing, asset utilization, inventory control, and production efficiency.