Man working at his desk on a laptop with coffee and papers

Your revenue looks solid on paper, but somehow, your bank account doesn’t reflect that. You’re working hard, taking on more projects, and the pipeline is full. But profit is tight, and cash flow feels like a constant challenge.

This is more common than you think.

The issue isn’t always about how much you’re earning. It’s often about how much your work is costing you.

That’s where Cost of Goods Sold (COGS) comes in.

What is COGS?

COGS includes all the direct costs involved in delivering your product or service: things like materials, labor, and project-specific overhead. It’s the money you spend to earn your revenue.

And when COGS is too high, profit disappears — even when revenue is strong.

What This Looks Like in Practice

A growing general contractor specializing in high-end residential projects had a calendar booked solid, but still struggled to grow. Margins were thin, and profitability felt out of reach.

A deeper dive into job costs revealed that COGS was eating up 70% of revenue — far above the industry average of 50–55%.

Here’s what was driving the high costs:

Ordering materials per job at retail prices
Subcontractors billing for idle time
No clear system for tracking labor hours across jobs

What changed

Three key shifts made the difference:

Bulk purchasing: Negotiating better rates by buying in larger quantities and consolidating orders
Smarter scheduling: Tightening project timelines to reduce downtime for subcontractors
Real-time labor tracking: Using time logs to reveal inefficiencies and improve estimates

Twelve months later, COGS dropped from 70% to 55% of revenue.

That 15% margin shift created breathing room to:

Increase owner’s pay
Invest in new tools
Grow the team (all without raising prices)

How to calculate your COGS

Use this simple formula:

COGS = Direct Materials + Direct Labor + Job-Specific Overhead

Example:

Direct materials: $50,000
Direct labor: $20,000
Equipment rentals and site overhead: $10,000
Total COGS = $80,000

When you know your COGS, you get a clearer picture of how much it really costs to deliver your work — and how much profit you have left to work with.

Why this matters

COGS isn’t just a number. It’s one of the clearest indicators of profitability.

If your projects or services are costing too much to deliver, no amount of new sales will solve the problem. But tightening COGS doesn’t mean cutting corners. It means:

Setting smarter prices
Buying more strategically
Managing labor more intentionally

Just like in the example above.

If you’re unsure whether your costs are in line with a healthy, profitable business, now’s a good time to take a step back and review your numbers. Our free Business Financial Health Check quiz can help you spot where small adjustments could make a big difference in your bottom line.