Cost of sales (also called cost of goods sold, COGS) is the direct cost of the goods or services you sold. It's subtracted from revenue to give gross profit.
Published July 2026 · Updated July 2026
Cost of sales is the direct cost of producing or buying the goods and services you sold in a period, materials, stock bought for resale, and directly attributable labour. It excludes general running costs like rent and admin, which are overheads.
Cost of sales sits just below revenue on the profit and loss. Subtracting it gives gross profit, and expressing gross profit as a percentage of revenue gives your gross margin, a key measure of how profitable your core activity is.
Cost of sales is directly tied to what you sold; overheads (rent, software, admin) are the general running costs that don't change directly with each sale.
Yes, typically the direct cost of delivering the service, such as the time of the people doing the work or subcontractor costs.
Source: Investopedia ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.