Cost of Goods Sold (COGS) varies significantly across industries, reflecting the direct expenses incurred in producing or delivering their specific goods or services. Here are examples from fashion retail and SaaS (Software as a Service) industries:
Fashion Retail Industry
In the fashion retail industry, COGS primarily encompasses the direct expenses incurred in acquiring or manufacturing the clothing and accessories sold to customers. Key examples include:
- Wholesale Costs: The price paid to suppliers for purchasing inventory, such as garments, shoes, and accessories.
- Raw Materials: For fashion brands that manufacture their own products, this includes the cost of fabric, thread, zippers, buttons, labels, and packaging.
- Direct Labor: Wages and related expenses for employees directly involved in the production process (e.g., cutting, stitching, finishing) or in preparing items for sale (e.g., tagging, steaming).
- Manufacturing Fees: If production is outsourced, the fees paid to garment manufacturers are included.
- Shipping and Handling: Costs associated with receiving inventory from suppliers.
SaaS (Software as a Service) Industry
For SaaS companies, COGS represents the direct costs associated with delivering the software service to customers. Unlike traditional manufacturing, SaaS COGS does not involve physical goods but rather the expenses directly tied to the provision and maintenance of the service. Examples include:
- Hosting and Cloud Infrastructure Costs: Expenses for cloud services like Amazon Web Services (AWS), including server usage, data storage, and application performance monitoring (APM) fees.
- Software Licenses and Subscriptions: Payments for third-party software, tools, or data that are integral to the functionality and delivery of the SaaS product.
- Employee Costs for Service Delivery: Salaries and related expenses for personnel directly involved in keeping the production environment operational (e.g., DevOps, infrastructure engineers), providing technical support, and ensuring customer success (focused on retention and satisfaction).
- Transactional Costs: Expenses related to processing transactions, such as invoicing.
- Website Maintenance and Development: Costs associated with maintaining the platform through which the service is delivered.