What is the difference?

COGS vs Operating Expenses

Cost Of Goods Sold

Operating Expenses

What is it?

The Cost Of Goods Sold (COGS) is the measure of direct costs incurred by a company to manufacture or deliver their product or service. Costs typically include raw material and direct labour, but this varies from business to business, depending on the products or services that are being sold. COGS is the building block to understanding Gross Margin and Gross Margin Percent.

Operating Expenses are the expenditures that are not directly associated with the production of goods and services. For example: Sales & Marketing costs, Administrative salaries, Research & development costs, as well as any other non-direct costs, are classified as operating expenses.

Who is it for?

Customer Support Manager

Chief Financial Officer

Formula

ƒ Sum(Direct Labour Costs) + Sum(Other Direct Costs)

ƒ Sum(Operating Expenses)

Example

A SAAS based Company A has the following costs that were incurred in a month: Amazon Web Services hosting costs: $30,000 Site Reliability Engineering Salaries: 45,000 Customer Support Salaries: $10,000 Consultant hired to work on infrastructure: $5,000 The total COGS for Company A this month is: $90,000

On the New Relic 2020 income statement, the operating expenses are: General and administrative: $99,284, Selling and Marketing expenses: $334,319, Research and development: $148,159. This gives us a total operating expense of $581,762.