SaaS Metrics Encyclopedia
COGS, or Cost of Goods Sold, is a fundamental financial metric that represents the direct costs associated with producing or purchasing the goods that a company sells during a specific period. These costs include expenses directly tied to the production or procurement of products, such as raw materials, labor, and manufacturing overhead.
Measuring COGS is essential for understanding the profitability of a company's core operations. It allows businesses to assess the cost efficiency of their production processes and provides a clear picture of the direct expenses incurred in delivering products to customers. COGS is a critical component in calculating the gross profit margin, a key indicator of a company's ability to generate profit from its core business activities.
Improving COGS involves optimizing the efficiency of the production or procurement process to reduce the direct costs associated with goods sold. Some strategies to lower COGS include
Optimize Infrastructure Costs:
Efficient Software Development:
Licensing and Third-Party Costs:
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