Cost of Goods Sold
Definition
Cost of goods sold, or COGS, is the direct cost of labor and materials required to deliver the services you billed, excluding overhead.
What Cost of Goods Sold Means for Your Business
What it means
COGS in field service is typically tech labor at a burdened rate plus the parts and materials installed on the job. It does not include office rent, insurance, or dispatcher salaries.
Why it matters
COGS is the engine of gross margin. Get it wrong and your whole financial picture is wrong. Most field service shops under-cost labor burden, which makes gross margin look better than it is.
How contractors use it
Accountants calculate COGS monthly using payroll reports and inventory usage. Owners compare COGS to revenue to get gross margin and hunt for month-to-month drift.
Real-World Example
A plumbing company's monthly COGS ran $182,000 on $410,000 revenue for a 56% cost ratio. Adding 12% labor burden they had been ignoring moved COGS to $203,000 and revealed the true gross margin was 50%, not 56%.
Related Terms
Gross Margin
Gross margin is revenue minus the direct cost of labor and materials, expressed as a percentage of revenue.
Labor Burden
Labor burden is the total cost of employing a technician beyond base wages, including payroll taxes, benefits, insurance, uniforms, and workers' compensation.
Burdened Labor Rate
Burdened labor rate is a technician's true hourly cost after adding payroll taxes, benefits, and other employment overhead on top of base wages.
Parts Markup
Parts markup is the percentage added to the wholesale cost of a part to set the retail price the customer pays.
Job Costing
Job costing is the practice of tracking every labor, material, and overhead cost tied to a specific job so you can measure its true profitability.
Put This Into Practice with Free Software
Kaldr Tech handles cost of goods sold and everything else you need to run your shop. $0/month, 3.5% + 30¢ per transaction.