Financial Projections: COGS

Financial Projections: COGS

September 7, 2020 by investor

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

Cost of Goods Sold, called COGS forecasting, represents the cost to build and deliver your product or service.

This includes the cost to build the product or hours to deliver the service. 

In most cases, COGS is a function of sales. The more sales, the more COGS.

If you have a unit that drives your sales forecasts such as a physical product or service program, then you can calculate what it costs to deliver on each one.

An interesting KPI will be Gross Margin which is the amount of revenue left over after subtracting out the COGS. This is often expressed as a percentage.

For recurring revenue businesses, there are hard costs such as hosting, customer support, online payment, and other related costs. These costs must be incurred to deliver the product or service. 

For consumer product goods, a healthy gross margin is 40% or greater. 

For recurring revenue, a healthy gross margin is 70% or greater.

For businesses with multiple products, you may want to split out the COGS by product line.

For businesses with one product, you may want to forecast COGS on the total revenue level.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.