Costing & Pricing Basics

Intermediate

Cost of goods sold & gross margin

The most useful number for pricing.

Cost of goods sold (COGS)

COGS is the direct cost of the things you sold — the wholesale cost of stock, the materials in a product, or the direct labour for a service. It does not include rent or admin salaries; those are operating expenses.

Revenue minus COGS equals gross profit. Express that as a percentage of revenue and you have your gross margin, the single most useful number for pricing.

Gross margin % = (Revenue − COGS) ÷ Revenue × 100. Sell something for RM100 that cost RM60 and your gross margin is 40%.

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