Cost of Services

Cost of Services (COS) refers to the direct costs associated with selling and delivering your product or service

You would be surprised at how many business owners don't have this broken out on their financial statements

Instead, all costs are shoved down into operating expenses

The problem with this is that it makes it extremely difficult to have visibility into your Gross Profits and Gross Profit Margin Percentage

What might be included in Cost of Services for a Video Agency:

• Payments to contractor who edits the videos
• Payments to contractor who makes the thumbnails
• Video editing software costs

What might be included in Cost of Goods for an Ecommerce store selling Shampoo:

• Cost of the bottle
• Cost of the label
• Cost of the shipping
• Cost of making the actual shampoo

Examples:

Good Example

It's a good example because you can see the cost of services broken out, as well as see the Gross Profit

Not So Good Example

It's a not so good example because you can't see the cost of services broken out and the Gross Profit shows as the same amount as the Total Income

Increasing your Gross Profit Margin

Directly increases your Net Profit Margin

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Thanks for reading:)